Ballots to Bullion: Examining the US Election's Effect on Gold

A brave new world

Given the US's pivotal role in the global economy, coupled with the prevailing geopolitical uncertainties, the upcoming presidential election is viewed by many as a watershed moment with far-reaching implications.

As it stands, Republicans led by Donald Trump are ahead in the polls, but the outcome is far from secured. Furthermore, the recent events in the campaign trail – both the assassination attempt on President Trump and President Biden stepping down from the presidential race – have increased the level of uncertainty for an already divided US electorate. In this context, investors are asking about the effect of the election on gold.

Our analysis suggests that while US gold bar and coin demand seems to increase, on average, during Democratic presidencies, this is not the case with other segments of investment demand. In addition, party affiliation does not have a consistent impact on price during US elections. Instead, economic policies, both domestic and foreign, of any given president are more relevant to the behaviour of financial assets, including gold. And while, historically, the US election has not been seen as a geopolitical risk, both the world and the US electorate remain highly polarised. This in turn highlights the need for robust hedges in investor portfolios, a role that gold fulfils effectively.

Is there a crystal ball this time?

Notwithstanding gold’s general behaviour during elections, this time we have the added advantage of knowing how gold performed during the previous Trump administration. Even though Biden is now not running for re-election, we can analyse the behaviour of gold under his presidency assuming there will be a continuation of his policies under a new Democratic administration.

Gold did well during both Trump and (so far) Biden presidencies through a combination of policy decisions and broader global macroeconomic drivers.

Gold rose by 60% during Trump’s presidency - increasing by nearly 30% pre-COVID and slightly over 30% during the pandemic. Under Biden, gold moved sideways initially, but has gained more than 30% during the term so far, primarily due to broader macro factors and central bank buying.

US elections and geopolitical risk

Our analysis has previously shown a direct connection between geopolitical risk and gold. We have found that a 100bps rise in the Geopolitical Risk (GPR) Index,³ holding all else constant, has a c.2.5% positive impact on gold’s return. This reinforces the view that gold tends to be perceived by investors as a safe haven during times of elevated geopolitical risk.

But what does this mean in relation to a US presidential election? Our analysis yields that, historically, movements in GPR around past US elections have not proven to be a major direct driver of the gold price.⁴ Instead, we believe this form of risk shows up indirectly, and is subject to a time lag based on the market effect of the policies – both foreign and domestic – that a given administration rolls out throughout its term. 

Similarly, BlackRock’s recent analysis on its internal geopolitical risk dashboard does not rank the upcoming US election as a top 10 geopolitical risk for 2024.⁵

Nevertheless, geopolitical risks remain high with little chance of a significant decline in the near future. 

For example, if Trump is elected, he will likely confront a more polarised world than during his previous term. As such, global markets may be more reactive to the direction of his policies – especially foreign ones. For instance, recent commentary from Trump on NATO may signal continued geopolitical uncertainty.

Equally, from a GPR indicator standpoint, risk levels were significantly lower at the beginning of Biden’s presidency, compared to where they are today; they will also likely continue to rise as the election nears regardless of the candidate behind which Democrats rally (Chart 5). And a Democratic presidency with similar policies to Biden's may meet a divided Congress and have difficulty in passing legislation.

Further, BlackRock identifies the foremost concerns this year to be a major cyber-attack, a major terror attack, and US-China strategic competition.

All such event risks could encourage investors to include more hedges, such as gold, in their portfolios and could provide support for gold.

Our analysis suggests that the 2016 campaign serves as a suitable proxy for the upcoming election. For example, like 2016, we see a similarly divided electorate for both candidates and a potential shift in the party controlling the White House. Given Trump is currently leading in the polls we can develop a base-case expectation for likely government policy changes post-election (Chart 6). This also presents an opportunity for investors who may be underhedged and underexposed to assets like gold.

Appendix

US bar and coin demand has doubled with Democrats

As a key component of demand, retail bar and coin gold investment is a relevant segment to monitor leading up to the US election.

Historical data suggests that the sale of gold coins via the US Mint tends to spike in anticipation of a Democratic victory. For reference, in any given month the average volume of ounces in gold coins sold to authorised purchasers via the US Mint is roughly 60,800 ounces.⁷ However, during the month of an election in which the Democrats win, this figure has risen on average to 86,400 ounces, compared with 71,000 ounces for Republican victories over the past 37 years.

Anecdotal evidence indicates that retail bar and coin buyers may be Republican leaning. This could partially explain the increase in demand around the election, particularly when a Democrat wins.

However, this pattern extends beyond the election month. Over the 12 months post a Democratic win, the average monthly volume sold is roughly 79,000 ounces compared to a mere 32,500 ounces observed after a Republican victory (Chart 7).

Similarly, bar and coin demand (the volume of gold bars and coins bought by individuals) tends to surge and remain elevated when a Democrat is in the White House (Chart 8).

Footnotes

¹In a previous study we found that midterms had a positive effect on equities and gold, with a Democratic sweep delivering the highest returns; however, these results were based on few observations and thus not statistically reliable. We also noted the impact of other factors like monetary policy or the direction of the US dollar as more relevant in predicting gold’s behaviour.

²Interestingly, prior analysis performed by State Street Global Advisors highlights that gold tends to outperform both equities and bonds in the year following an election in which the challenging party was victorious. The note on SSGA’s study can be found here. However, we note that this was not the outcome for gold after Trump’s or Biden’s first election victories.

³Per Matteo Iacoviello, the creator of the Index, the GPR Index is constructed as the share of press articles mentioning geopolitical tensions, by searching for specific words in newspaper articles related to geopolitical risks. The Index has a reliable track record of reflecting observed impacts to underlying economic variables at a global level.

⁴Data tested over the last four elections and with dummy variables where we found size, sign, and significance to be immaterial.

⁵Access to BlackRock’s geopolitical risk dashboard can be found here.

⁶It is worth noting that 2024 is an historic election year with elections taking place in 50 countries. The World Economic Forum estimates more than 2 billion voters will head to the polls. A summary of global elections can be found here.

⁷The Mint distributes uncirculated bullion coins through a network of wholesalers, brokerage companies, precious metal firms, coin dealers and participating banks, a network known as Authorised Purchasers (APs). These APs, in turn, create two-way market buying and selling to precious metal wholesalers as well as to private investors.

⁸The average demand for any given quarter, inclusive of the election quarter, equates to roughly 14t, over a period ranging from Q1’00 to Q3’23. It is also important to recognise, that we are working with a small sample, and broader event risks like the GFC and COVID and their proximity in timing around elections may have impacted results.