Gold prices tend to rise when geopolitical risks increase. But what relevance does this have concerning a US presidential election, and could a Donald Trump victory send the price of gold upwards, even when it continues to set record highs?

The presidential election in the United States on 5 November is fuelling speculation among investors about how the price of gold may evolve in the days and weeks following the election. According to a new report by the World Gold Council (WGC), high geopolitical risk may encourage investors to seek gold as a hedge.

Although, historically, gold tends to underperform its long-term average in the run-up to US presidential elections, US elections have not generally been considered a geopolitical risk. This year, however, Juan Carlos Artigas, global head of research at the World Gold Council, warns that these elections ‘will take place in an environment in which electorates, both in the US and globally, are increasingly polarised and geopolitical risk is significantly elevated.’

The WGC analysis suggests that ‘while demand for bullion and gold coins in the US appears to increase, on average, during Democratic presidencies, other segments of investment demand do not’. He points out that ‘party affiliation does not have a consistent impact on price during US elections. Instead, any president’s economic policies, both domestic and foreign, are more relevant to the behaviour of financial assets, including gold.’

Is gold apolitical?

According to the study, two opposing trends can be observed: gold appears to trend upwards six months before the election of a Republican president and remains stable in the post-election period. Conversely, it falls in price before the election of a Democratic president and falls just below its long-term average in the six months after the election.

That said, the WGC argues that these results are not statistically significant, since there is appreciable variability and there are few examples for each of the cases analysed. Therefore, the price of gold is likely to respond more to specific policies than to the party affiliation of the president-elect.

In this context, the policies of tax cuts, tariffs and less regulation promoted by Donald Trump’s candidacy are seen as inflationary on Wall Street and the Federal Reserve could be forced to raise interest rates again. A scenario that would put gold ‘in a prime position to rally,’ said Gregory Shearer, an analyst at JPMorgan Chase.

This perception that gold offers the best hedge for an investment portfolio in the event of Donald Trump retaking the White House seems to be confirmed in the latest Bloomberg survey. “Proponents of the precious metal as a haven play in case of Trump’s reelection outnumbered those picking the US dollar two-to-one among the 480 respondents”, the news agency explained.

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