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3 Factors That Will Rule Gold Prices After Joe Biden's Win

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At the end of last week, Joe Biden crossed the threshold of 270 electoral votes required to make him the next President of the United States. Bullish gold investors may have initially cheered his win, supported by weakness in the US dollar, but there are more layers to the US elections and the recovery of the American economy that could dictate the price movement of the precious metal in the weeks to come.

 

Movement in the international markets dictates the direction of gold prices in India.

3 Factors That Will Rule Gold Prices After Joe Biden's Win

1. Weakness in the US dollar

While Biden, a Democrat, may have won the Presidential election, the status of the Senate control remains unresolved. Democrats will have to wait till January for the two Senate runoff races in Georgia, to make clear whether they'll re-take control of the upper chamber.

Until then, a Democratic president and House, and a Republican Senate will be ideal for gold to rally. This is because if neither party controls the Congress, both trade wars and higher taxes will largely be out of the discussion.

Moreover, a divided Congress has also lowered expectations for a massive US fiscal stimulus package.

With a sizeable stimulus to aid the coronavirus-hit economy out of question, bond yields have slipped sharply lower in anticipation of less borrowing and more quantitative easing from the US Federal Reserve.

The plunge in long-term US Treasury Bond yields makes the dollar a less-attractive investment, driving demand for gold.

2. A smaller-than-expected US stimulus

Last month, President Donald Trump pledged a large post-election stimulus act, based on the assumption that he will be re-elected. Now, with only weeks left in office, he has little political incentive or capital to drive a deal through a divided Congress.

Meanwhile, Senate Majority Leader Mitch McConnell cited falling unemployment in his argument for a "highly targeted" relief bill, but House Speaker Nancy Pelosi rejected the idea, saying "that isn't something we should be looking at."

 

Both Democratic and Republican lawmakers have called for renewed talks, neither advocating holding off until next year.

However, if Democrats wait until in January and if they win a majority in the Senate, Biden, Pelosi and Senate Democratic leader Chuck Schumer will be able to push their own plan.

It is likely that the Republican Senate will try to block the scale of spending that the Trump administration was negotiating last month, which is about $1.9 trillion. Democrats have been aiming for a larger stimulus of $2.4 trillion, still less than the $3.5 trillion planned back in May.

Lack of additional immediate aid for COVID-19 endangers the American economy's recovery, and could also cripple the nation's health care system.

Ahead of Biden's win, on Thursday, Federal Reserve's Chairman Jerome Powell said the resurgence in virus cases was "particularly concerning," and reiterated his call for fiscal support.

Gold prices tend to surge on widespread stimulus as it is considered a hedge against inflation.

3. Fed Reserve's Policy Stance

On 5 November, the Federal Reserve kept its loose monetary policy intact, while pledging to do whatever is possible to sustain recovery in the world's largest economy. Chairman Powell said that while the economy is still growing better than expected, he "would not say that anybody is feeling comfortable" about the rise in the COVID-19 cases in the US.

On 6 November, the US Labor Department's employment report showed that the US economy created the fewest jobs in five months in October and more Americans have been working part-time.

The employment data and a rise in the number of COVID-19 cases in the US, which have gone beyond 120 million, have made the need for additional stimulus from its government almost urgent. However, with a divided Senate, hopes are now set on the Federal Reserve to do more to help revive the US economy.

Read more about: gold joe biden
Story first published: Monday, November 9, 2020, 17:46 [IST]
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