How would the race to the Oval office and covid-19 vaccine impact on the gold market?

Summary

• The gold market is consolidating after correcting from the top with prices now trading in a narrow range, waiting for some major events to unfold.
• The upcoming U.S. Presidential elections and the COVID-19 vaccine development are two much-anticipated events that could shape the future of many asset classes.
• The race to the White House is on, and historically the U.S. Presidential elections have a tendency to bring a radical change in the financial markets on the global front.
• Current market speculations around the U.S. Presidential elections and COVID-19 vaccine development.

The gold spot seems to be waiting for a catalyst for deciding its future course with prices consolidating in a range after correcting from the record high.

To Know More, Do Read: Is the Gold Price Ready to Move Out of Shadows?

The gold spot is currently under a consolidation phase, and the investors are focusing their attention towards the two much-anticipated events holding the potential to shape the future of many asset classes on the global front, i.e., the U.S. elections and the COVID-19 vaccine development.

The U.S. Elections

The race to the White House is on, and historically the U.S. Presidential elections have a tendency to bring a radical change in the financial markets on the global front as a change in the leadership of the world’s biggest economy often brings a shift in the fiscal policies of not just the United States but various others economies.

The U.S. Presidential elections certainly play a pivot role in changing the global economic scenario, and it would be a major theme for global financial markets to watch out in the coming weeks ahead.

With Biden and Trump going face-to-face in November for attaining the prime chair at the oval office, every indication pointing towards the potential winner of the race would bring in increased volatility in the global financial market.

Therefore, the event is currently the most awaited one and eyes of the global investing community are closely tracking the development on that front.

However, does the election outcome really matter?

Well, considering the study of traditional movement in gold prices during and after elections years available in the public domain, it could be assessed that gold does not hold any traditional correlation with either democrats or republicans win or lose.

However, the market speculation and prevailing macroeconomic scenarios certainly hold a correlation with the gold spot.

Current Market Speculations Around Trump and Biden

Ideally, the value of U.S. dollar correlates with the gold price, and it is generally understood that a weaker dollar means a strong gold and vice versa.

Some market participants believe that Trump winning the election can support the U.S. dollar while Biden win can be bearish.

The U.S. President Donald Trump won the previous elections in 2016, and since he assumed office, the U.S. dollar index (or DXY) has gained considerable momentum.

The strength gained by the U.S. dollar index under Trump’s administration has favoured the U.S. stock market with many market indexes climbing to record highs.

Trump’s win is once again speculated to support the U.S. dollar prices over stringent cross-border policies and extreme stimulus injected into the economy by the Federal Reserve.

Thus, Trump’s win is speculated to support the U.S. stock market over a strong dollar, which could be negative for gold.

On the flip side, the market speculates that Joe Biden is a big fan of a greener economy, which could be inferred from his commitments to make big changes with regards to regulation; thus, many speculate that Joe Biden is not a friend to the mining industry.

The regulatory changes promised by Joe Biden is anticipated by the market to include a USD 1.7 trillion climate policy plan and a USD 1.3 trillion infrastructure improvement plan.

Therefore, if Joe Biden wins with full democratic control over the house and the senate, his plans are estimated to increase the national debt considerably, especially at a time when it is already high.

Apart from that, Joe Biden is expected to bring in corporate and capital gains tax hikes.

Thus, Joe Biden’s win is speculated to deprecate the value of U.S. dollar, which is not a good thing for the U.S. stock market but could be a positive for the gold spot, as higher uncertainty and weaker dollar divert investors toward safe-haven assets.

How is COVID-19 Vaccine Development Shaping Various Asset Classes?

While a lot of attention is focused on the U.S. Presidential elections, another event which holds the potential of shaping the future market for many asset classes is the development of COVID-19 vaccine.

In the recent past, gold prices retraced sharply over the news of Russia discovering a vaccine.

However, market opinions around the effects of COVID-19 vaccine development are also bifurcated with some believing that a vaccine could dent the gold spot while some are believing that it would work exactly the opposite.

Depending upon the market, macroeconomic, and interest rate scenarios, both opinions could come true in the future.

A vaccine development could end the prevailing uncertainty around risky assets; thus, could dent the gold prices.

However, on the contrary, the impact could be of short-term as a vaccine development could further lead to an improvement in the prevailing economic conditions, leading to better consumer sentiments, a decline in unemployment, and so on.

Therefore, a vaccine development could eventually support the demand for gold jewellery, which witnessed a considerable decline in the wake of deteriorating economic conditions on the global front, especially across emerging Asia.

In a nutshell, while both the events are much awaited and widely monitored, both could have various impact on the gold spot depending on how the global economy would unfold.