Every 4 years, one event that could alter the geopolitical shape of the world occurs (no, it’s not the Olympics). We are of course referring to the US Presidential election. The US Presidential elections are pivotal events that have the potential to significantly influence economic trends and investor behavior.

One of the assets most affected by these political shifts is gold, physical and digital. Historically, gold has responded dynamically to political and economic situations – in times of uncertainty, gold prices increase and in times of stability, gold prices tend to decrease. This is also true during uncertain election periods in the United States.

Today, we will delve into the relationship between presidential elections and gold markets, highlighting historical impacts, investor behavior, future investment trends, and the rise of digital gold.

Historical Elections and Gold Price Trends

Historically, presidential elections in the United States have had a noticeable impact on the price of gold. Elections often bring uncertainty – either positive or negative – as investors prepare their portfolios for potential changes in economic policies, tax regulations, and international relations. This uncertainty typically leads to a shift in market sentiment, influencing safe-haven assets like gold.

1. Jimmy Carter (Dem. 1977-1981) During Jimmy Carter's presidency, gold prices surged by 326%, influenced by geopolitical tensions such as the Soviet invasion of Afghanistan in 1979 and the Iranian hostage crisis in the same year. Internally within the US, domestic economic factors like inflation were negatively affecting the stability of the US dollar, which inversely raises the price of gold.

   
   

2. Ronal Reagan (Rep. 1981-1989) Conversely, Reagan's presidency witnessed a 26% drop in gold prices as the U.S. economy stabilized and international tensions eased. This was a crucial point for gold because since the end of the gold standard in 1971, the price of gold had been increasing continuously.

   
   

3. Barack Obama (Dem. 2009 – 2017) Under Barack Obama, gold prices rose by 40% from 2009 to 2017, peaking amidst economic crises and political uncertainties. The US debt ceiling crisis in 2011, for example, spurred a gold price surge to $1,895 per ounce, reflecting investor concerns over potential government default.

   
   

4. Donald Trump (Rep. 2017 – 2021) During Donald Trump's presidency, gold saw a notable rise, driven by the US–China trade tensions and geopolitical threats, including tensions with North Korea. However, it was the COVID-19 pandemic that propelled gold to an all-time high of over $2,000 per ounce in August 2020.

   
   

5. Donald Trump (Rep. 2025 – 2029) There does not exist a crystal ball that will tell anyone how the price of any asset will react to certain triggers. We can only look at historical trends and current situations and make extrapolations based off those. It is confirmed that Donald Trump is the President elect for 2025, and, as of time or writing, we are seeing a noticeable drop in the price of gold. This could be because gold prices tend to dip when a Republican candidate takes office (more on that below), or it could be because of his proposed foreign policy plans, or it could even be because he is pro-Bitcoin and people see that as the next store of value. We simply cannot be sure at this stage, but we can say that the future of gold will be one to keep an eye on moving forward.

Why Elections Influence Gold Prices

1. Policy Uncertainty An inbound president brings with them their own economic and foreign policies, which can affect inflation, strength of the currency, and interest rates. The general population would not be able to guarantee that any of the promises made by the incoming president – that their rhetoric during their campaign on these issues – would be enacted. So, with gold being the safe-haven asset, people flock to it to better protect themselves from any potential downward pressures on their other assets. To break it down, gold is highly sensitive to these factors:

• Inflation: If a presidential candidate promises increased government spending or tax cuts, one might expect inflation to rise, prompting investors to buy gold as a hedge against the potentially incoming inflation.

• Currency Fluctuations: If markets anticipate that a candidate’s policies may weaken the dollar, demand for gold often increases, as a weaker dollar makes gold less expensive in other currencies.

• Interest Rates: Gold prices are significantly impacted when an incoming president alters anything related to the Federal Reserve policies. For example, when interest rates are low, the cost of holding non-yielding assets like gold decreases, making them more appealing.

2. Geopolitical Concerns The elected president’s stance on US foreign policy changes can affect international stability. If an election is expected to lead to tense foreign relations, it often drives gold prices up as investors anticipate global disruptions – some analysts predict this to be the case with Trump’s reelection.

Pre-Election Period

During election years, gold markets often become more active in the months leading up to voting day. Investors flock to gold as they weigh the potential impact of each candidate’s policies on the economy. This period can be characterized by:

1. Increased Volatility As poll results fluctuate, so too do investor sentiments. When a candidate with a perceived “market-friendly” approach is leading, gold prices may dip as investor confidence in the economy rises. Conversely, if the markets fear that a candidate’s policies may disrupt the economy, gold demand may surge to hedge against the economy.

For instance, during the 2020 presidential race between Donald Trump and Joe Biden, there was significant pre-election volatility due to uncertainties surrounding COVID-19 policies, economic stimulus, and potential changes in tax legislation. Gold prices fluctuated as each candidate’s policies became clearer, reflecting investor sentiment about potential future economic stability. Gold ended up surging to a new all-time-high during the pandemic due to inflation fears and the onset of the Ukraine-Russia war in 2022.

Post-Election Adjustments and Long-Term Effects on Gold Markets

Once a winner is declared, the immediate uncertainty dissipates, but markets then turn their attention to the new administration’s agenda. Post-election impacts on gold markets can vary depending on the perceived stability or instability of the policies introduced.

The winner’s policies and projected economic changes can lead to either a rush towards gold (in case of potential instability) or away from it (if stability is expected). For instance:

1. 2012 Re-election of Barack Obama Gold initially saw gains after Obama’s re-election due to the perception that his policies would support continued quantitative easing, which would likely drive inflation. However, by the end of his term in 2016, gold prices declined due to the $US strengthening.

   
   

2. 2020 Election of Joe Biden After Biden’s victory, gold prices initially rose amid expectations of increased government spending on infrastructure and COVID-19 recovery efforts, both of which were thought to support inflation. Prices continued to increase especially due to geopolitical conflicts ongoing today.

Democrat vs. Republican Presidencies: Different Impacts on Gold

While this is by no means an absolute, historically, Republican administrations are often perceived as more market-friendly, favoring policies that support business growth and the stock market, which in turn potentially reduces the immediate demand for gold.

Conversely, Democratic administrations tend to focus more on social spending, regulation, and economic stimulus, which may be seen as inflationary, raising demand of gold prices. In short:

• Democratic Presidency Increased fiscal spending, possibly driving inflation fears and thus leading higher gold prices.

• Republican Presidency Policies hopeful on economic growth and a stronger dollar, which may exert downward pressure on gold prices.

Again, this pattern is not absolute and should not be taken as such. One must consider broader economic contexts, global events, and the Federal Reserve’s monetary policy to truly understand all the crucial roles that influence gold prices.

Digital Gold and Elections

In recent years, digital gold has emerged as a modern alternative to traditional gold investments. Digital gold provides the convenience of online transactions and the security of blockchain technology. It has become increasingly popular among tech-savvy investors, particularly during election periods when market volatility peaks.

Investors have now been given a tool to act and respond faster to even the smallest of shifts on the political level. The quick access to trading platforms, lower transaction costs, and the retention of liquidity allows the smallest and largest gold investors to move funds in any direction to benefit themselves and their portfolios. There are few situations that require quick investment decisions than during an election cycle where stances are presented, debated, and backed up every day.

Conclusion

The relationship between presidential elections and gold markets is complex and multifaceted. Historical patterns demonstrate gold's sensitivity to political events, while the rise of digital gold underscores the asset's adaptability in a rapidly changing world. As we anticipate future trends, gold remains a vital component of investment strategies, offering stability amidst uncertainty. Investors should stay informed and agile, ready to leverage gold's enduring value in their portfolios.

By understanding these dynamics, investors can better navigate the gold market and make informed decisions during election cycles, ensuring their portfolios are well-positioned to withstand political and economic changes.