It should first be noted that presidents, on their own, are largely unable to push the stock market in any specific direction. Consider a study from the Federal Reserve Board which determined that “neither risk nor return varies significantly across the presidential cycle.” Therefore, investors seeking clues about future investment performance over the next four years should widen their perspective beyond the president. They should consider the entire political sphere.
If Biden is declared the winner, he will almost certainly need to work in cooperation with Republicans to accomplish change. At the moment it remains unclear who will control the Senate. However, if Republicans retain their control Biden will need to build consensus to drive change. This joint approach could easily slow or even pause future fiscal stimulus measures. The result would likely be strong for safe haven assets like gold.
Additionally, U.S. bond yields remain relatively low. In this environment the opportunity cost of holding gold drops. This relationship is important because it is one that is outside the president’s control for the most part, given that these decisions fall to Federal Reserve Chairman Jay Powell. Powell will retain his position until February of 2022. As a result, it is unlikely that we will see any meaningful change to the governments approach to interest rates any time soon.
Even if Biden is able to appoint a new person to the role, he may very well choose someone that represents a continuation of Powell’s approach. This outcome is evident in remarks from Jared Berstein, one of Biden’s key economic advisors, who explained that he is “hard pressed to find all the positive adjectives I can think of for Jay Powell’s job.”
Interest rates, however, are not the only factor likely to be supportive for gold investments over the next four years. Sweeping reforms like selective tax increases, and greater business regulation may temper growth across publically traded companies leading to a setting in which gold becomes a more favored investment in comparison to equities.
Finally, as the U.S. enters the cold winter months COVID-19 has continued to surge. In recent days, the country surpassed 10 million cases. Importantly, the rate of new cases is escalating. The U.S. now experiences an average of 100,000 new COVID-19 cases everyday. In short: America has suffered from more COVID-19 cases than any other country on the planet.
Unfortunately, this trend is unlikely to abate any time soon. The result could be lower consumer confidence, worsening business conditions, and diminished growth prospects for U.S. and global businesses. The pandemic continues to take a toll on investors and corporations. This environment has renewed interest in durable stores of wealth like commodities including gold. While there will be an eventual end there is almost certainly no improvement to be expected in the near-term.
Changes are afoot and many of them will leave gold investors well positioned for growth. A continuation of a low interest rate environment, tempered business growth, and a towering public health crisis all support gold investments for the long run.
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