How the 2024 US Election Result Could Impact Gold Prices

The results are in. Donald J. Trump has been elected as the 47^th President of the United States of America. Significantly, the Republican Party has also retaken the Senate and at the time of writing, appears to have a reasonable chance of retaining control of the House of Representatives.

But how does this impact current and prospective gold investment? We explore the factors that will help shape its price performance going forward.

Gold as an Electoral Safe Haven

The polls leading up to the presidential election had been extremely close and the outcome highly uncertain. With suggestions that the result might be contested – as they were in 2000, 2016 and 2020 – there is little doubt that gold attracted investment as an electoral hedge.

However, the result appears to have been decisive, with a likely ‘Red Sweep’ control of both Congress (Senate & House) and the Presidency. Moreover, with a sizeable lead in the popular vote also confirmed, this hedge is now being unwound, temporarily reinforcing a marginally lower gold price driven by other factors.

Gold and the US Dollar Under Trump

The gold price traditionally has an inverse relationship to the US Dollar. Much of this is purely translational – gold is typically priced in US dollars so a stronger dollar will result in a lower US dollar gold price.

But a stronger US dollar (and weaker gold) is also associated with stronger US growth, higher US inflation, and higher US interest rates, all of which we are likely to see under a Trump presidency as we explain further below. 

However, it is Trump’s apparent willingness to deploy trade import tariffs that have forex markets most worried. Such tariffs will reduce the competitiveness of exporters to the US, pushing their domestic currencies down in the process. Conversely, the US dollar will strengthen, putting pressure on US dollar gold prices.

We have already seen the US Dollar Index reach a four-month high post-election, though this is arguably the continuation of a trend seen since late September. A wildcard is Trump’s support for cryptocurrency deregulation, which will actively undermine the US dollar and provide more support for gold. 

Gold and Inflation Under Trump

Historically gold has had a positive correlation with inflation as the former is seen as a long-term store of wealth against the diminishing purchasing power of fiat currencies.

The proposed imposition of significant import tariffs could certainly boost US inflation as the tariffs are paid by the importing party and these are likely to eventually get passed on to consumers as importers seek to restore profit margins.

Thus far, however, it is unclear whether this is being priced in. The expected 5-year ‘breakeven’ inflation derived from rates markets has moved up to levels last seen in early July, but this trend has been in train since early September, supported by a resumption of ‘sticky’ US inflation data. Nevertheless, it is reasonable to suggest that a Trump presidency has at least increased the gold-supportive upside risk of US inflation.

Gold and US Interest Rates Under Trump

Higher US rates are usually associated with poorer gold returns because this increases the opportunity cost of holding zero-yielding assets. However, the relationship is more complex, with real (inflation-adjusted) long-term (10 years-plus) rates being the most significant.

Thus far, it’s unclear that Trump’s election has influenced long-term real rates, although if, as suspected, we do see greater inflationary pressure, the US Federal Reserve will respond by tightening monetary policy and this is likely to feed through to higher real long-term rates.

However, it is also possible that Trump’s push to make the Federal Government more efficient will help to shrink the huge US budget deficit, even net of tax cuts. If this successfully delivers higher sustainable growth, this should relieve stress on long-term real rates. We note that we have seen the market pricing in a lower probability of US debt default in recent days. Until we have more policy details, the impact on real long-term rates can be viewed as neutral.

Geopolitical Risk Under Trump

Higher levels of geopolitical risk have historically been viewed as a support for gold prices, as the yellow metal is viewed as a ‘safe-haven’ asset. While such risk factors are difficult to quantify with any precision, elevated geopolitical risk is thought to have been a significant support for gold prices over the last 2-3 years.

A Trump presidency is likely to see a more activist foreign policy with a determination to reach a settlement in the Russia/Ukraine war; the weakening of Iran and its proxies through renewed sanctions and clearer support for Israel; moves to contain a resurgent North Korean and a more assertive stance against China, initially through previously referenced import tariffs.

Such an approach will likely raise geopolitical tensions in the short term (supporting gold) but is likely to leave China as the only significant flashpoint over the medium-long term. However, this is very likely to remain unresolved as the US and China remain ideologically opposed and locked in a battle for global dominance. The status of Taiwan will be increasingly focal here.

Overall, we would argue that a Trump presidency will remain supportive of a further appreciation of gold, though the dynamics will certainly change from those that we have been accustomed to over the last 2-3 years. The situation will become clearer as policies are fleshed out and start to be enacted from January 2025, with geopolitical risk likely to remain the single biggest uncertainty.