While this year’s Presidential election was always going to be highly charged, the events of the past two weeks have really shaken things up. First came the assassination attempt against President Trump, then came the sudden announcement by President Biden that he was dropping out of the race, after having strenuously denied that he was going to drop out.
Now we’re faced with Vice President Kamala Harris facing off against President Trump, with the Democratic VP pick likely not to be announced until the Democratic convention. To say that things have been turned upside down in the past two weeks is an understatement.
Harris has received a bounce in the polls, no doubt due to happiness that Biden is finally out of the picture. But will that honeymoon last?
And more importantly from our perspective, how will the outcome of the election impact the prices of gold and silver?
Key Takeaways
- Gold and silver prices grew far more under Trump than under Biden
- Gold demand is stronger under Democratic administrations
- The Fed’s likely response to recession is to ease monetary policy, which is considered good for gold and silver prices
What If Trump Wins?
Since a lot of prediction markets still expect Trump to win the election, let’s take a look first at what might happen to gold and silver if Trump gets elected.
Many people speculate that a Trump win would be good for the economy, as he would institute pro-growth policies, lower taxes, etc. And if the economy gets stronger, people are less likely to want to buy gold.
Gold sees its strongest demand when people are uncertain about the future, fearful of the future, and expecting recession or some other economic malaise. So you normally might expect the gold price then to rise less under a Republican than under a Democrat.
However if you look back at gold’s price performance, it rose 53% under President Trump. So far under Biden, gold is only up 30%.
Silver’s performance is similar, having risen 51% under Trump but only 13% thus far under Biden.
While past performance is no guarantee of future performance, there’s certainly reason to hope that under another Trump presidency both gold and silver might see better gains than they saw under Biden.
What If Harris Wins?
It’s a common belief that precious metals are in greater demand under Democratic administrations than under Republican ones. And the statistics seem to back that up.
The World Gold Council recently published its analysis of the election, and showed that demand for gold bars and coins has doubled under Democrats, US Mint gold coin sales are stronger with a Democrat, and demand for physical gold is stronger under Democrats.
Since many gold buyers skew conservative, and since Democratic policies are harmful to the economy, that could explain why gold demand is stronger under Democratic administrations. So in that sense we might expect to see gold demand to pick up even more if Kamala wins.
But if demand is stronger under Democrats, and stronger demand often translates to higher prices, what explains gold’s significantly better performance under Trump than under Biden?
Certainly COVID played a role, as both gold demand and gold prices increased significantly in 2020. But COVID doesn’t explain everything.
If you compare the pre-COVID part of Trump’s term from January 2017 to January 2020, through the first three years of their terms the gold price increased 28% for Trump but only 9% for Biden. So obviously there was something there that helped boost gold under Trump, even though the economy was strong and stock markets were soaring, conditions that would normally be seen as conducive to lower gains for gold.
And even with high inflation and a faltering economy, gold didn’t fare as well under Biden, although it did hit multiple all-time highs. So should we expect muted performance if Kamala wins and for gold to take off if Trump wins?
What Is Likely to Happen
In all likelihood gold is going to do what it’s going to do regardless of who becomes President. And there’s a good chance that both gold and silver are going to increase in price regardless of who becomes President.
The US economy is facing significant headwinds, with continued elevated inflation and a weakening labor market. Markets are now starting to price in a near-certain Federal Reserve rate cut in September.
Rate cuts and easy monetary policy are generally considered good for gold and silver, and beneficial to pushing up their prices. The last two series of major rate cuts began just before the dotcom bubble collapse and the 2008 financial crisis.
If the pattern holds, and the next rate cut is the first in a series, it could mean that the US economy is on the verge of recession. And once the recession begins, that could boost demand for gold and silver and send prices soaring.
Whoever the next President is won’t be able to stop the next recession. That cake is baked in already, just like every recession before it.
It’s the result of overly loose monetary policy, malinvestment of resources, and a subsequent credit-induced boom phase that will eventually give way to bust. Just like 2008 and the dotcom bubble before it, the next recession will be a crisis that we’ll have to ride out.
The difference between Trump and Harris could be between how they react to the crisis, and the type of pressure they put on the Fed to intervene.
You would certainly expect Harris, as a Democrat, to push for more monetary intervention than a Republican. But Trump is no ordinary Republican, and if he were to approve an approach to the next recession that mirrored that of 2020, it could end up being just as big as Harris’ potential moves.
In any case, the next recession appears to finally be on the horizon, something we’ve been expecting for a while. And the Fed, as a one trick pony, will respond to the recession with some sort of easing, whether it’s rate cuts, quantitative easing, a combination of the two, or perhaps even something no one really expects.
How You Can Prepare With Gold and Silver
So how can you protect yourself? Starting thinking today about what’s likely to happen and start taking steps to prepare.
Looking back at 2008, we saw that gold and silver were some of the best performers in the aftermath of the crisis. Gold nearly tripled from its 2008 lows to its 2011 all-time high, and silver more than quintupled from 2008 to 2011.
Many people who lost out big in 2008 saw what gold and silver did and kicked themselves that they didn’t have the foresight to protect their finances with precious metals.
A lot of Americans aren’t making that mistake this time around, as demand for gold and silver has been strong recently. Demand for gold and silver coins and bars has been particularly strong, with many of those buying gold coins and bars choosing to do so through a gold IRA or a silver IRA.
Gold IRAs and silver IRAs offer all the same tax advantages as any other IRA. The only difference is that they hold physical gold or silver coins and bars, rather than conventional financial assets like stocks, bonds, and shares in funds.
Gold and silver IRAs can be funded with tax-free rollovers from existing 401(k), 403(b), TSP, IRA, or similar accounts, allowing you to protect your existing retirement assets without having to take a tax hit.
With an uncertain outcome of this November’s election and with potential recession hanging over our heads, many Americans have started putting gold and silver to work in protecting their financial security.
Will you do the same?
If you’re worried about the outcome of the election, or about losing money to recession, now is the time to act. Call Goldco today to learn more about how gold and silver can help you safeguard your financial future.
