- Gold prices heavily depend on the fate of fiscal stimulus.
- A blue wave could unleash a golden age for the precious metal.
- If Trump remains is reelected, the reaction could be mixed.
- President Biden with a Republican Senate would cause a meltdown.
Gold could power up if the government prints more money – that is the simple logic that has been rocking the precious metal in recent months. XAU/USD soared to new highs as central banks enhanced their bond-buying programs and as authorities used the funds to shore up the economies amid the coronavirus crisis.
The Federal Reserve, the European Central Bank, and even European governments did "whatever it takes." The US government also played its part early in the crisis with the CARES Act – but most programs have lapsed. Now, markets and gold bulls want more of what Uncle Sam can give.
Democrats and Republicans seemed to hover around a $2 trillion deal but failed to reach an accord ahead of the elections. A decision on more funds – of which some will likely fuel into gold – will wait for the new administration.
There are three main election scenarios that would all yield distinct results for XAU/USD:
1) Blue wave – Golden wave
President Donald Trump is trailing rival Joe Biden in national and state polls. According to FiveThirtyEight, he has an 88% chance of winning at the time of writing. Democrats have around 70% probability of winning the House and the Senate.
Source: FiveThirtyEight
In this "blue wave" scenario – which is the likeliest according to the polls – Dems could approve a bill worth $2 trillion as they nearly agreed with Republicans, or even $3.4 trillion as they originally wanted to do back in May.
For the yellow metal, the more the merrier. A break above the all-time highs cannot be ruled out in this scenario.
2) Trump reelected – a mixed reaction
Many still remember 2016 and claim that polls are missing the "shy Trump voter" and that he can still win the electoral college. While surveyors probably fixed some of their problems, there is still a chance that the president squeezes another victory. In that case, Republicans are also likely to cling onto the Senate.
See 2020 US Election: Polling, history and the submerged Trump vote
In this scenario, Trump may feel he has the mandate to impose his will on Republicans –something he struggled with toward the elections – and a stimulus package is likely even during the "lame duck" period.
Gold bulls would likely cheer such a scenario, but any rally would be short-lived, as the total package will probably be smaller than a "blue" one.
3) President Biden, Republican control – meltdown scenario
As mentioned above, the chances for Biden to oust Trump are higher than for Dems to beat the GOP in the race for the Senate. If Republicans cling onto the upper chamber, they would probably limit any large package.
Source: FiveThirtyEight
Gold could suffer in response to partisan brinkmanship – especially if the relief deal falls short of the $1 trillion mark. A significant retreat toward pre-pandemic levels is an option as well. Negotiations could be protracted.
Conclusion
Gold heavily depends on stimulus, and the more, the merrier. The optimal scenario is a clean Democratic sweep, followed by a Trump victory. A split between President Trump and the Senate is the worst outcome.
More: 2020 Elections: Seven reasons why this is not 2016, time to focus on the Senate
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD tumbles further and hit new YTD lows near 1.0580
The Greenback now resumes its uptrend and advance to new highs. forcing EUR/USD to abandon its initial constructive stance and reach new yearly lows in the 1.0580 region on Wednesday.
GBP/USD accelerates its losses below 1.2700
GBP/USD breaks below the 1.2700 support on the back of the sudden resurgence of buying interest in the US Dollar following US CPI data and some hawkish remarks from the Fed's Logan.
Gold extends slide to fresh two-month low
After shedding some ground throughout the first half of the day, the US Dollar is back in fashion. XAU/USD trades at its lowest in two months in the $2,580 region and is technically poised to extend its slump.
Bitcoin Price Forecast: Chances of pullback increase as miner selling ramps up
Bitcoin (BTC) price extends its decline for a second consecutive day on Wednesday, trading slightly down at around $87,600 after a 30% surge since November 5 pushed BTC to a new all-time high at $89,940.
Trump vs CPI
US CPI for October was exactly in line with expectations. The headline rate of CPI rose to 2.6% YoY from 2.4% YoY in September. The core rate remained steady at 3.3%. The detail of the report shows that the shelter index rose by 0.4% on the month, which accounted for 50% of the increase in all items on a monthly basis.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.