Will the New Presidential Regime Impact The Gold Market?

By Doug Young – 15 November 2024

Introduction

The gold market has always been a subject of interest for investors, especially during times of economic uncertainty. With the recent presidential election, there are concerns about how the new regime will impact various asset classes, including gold.

Here, we will analyze the short-term effects on major asset classes, examine the long-term prospects of the gold market, discuss the role of the Federal Reserve, anticipate inflation, and provide insights from experts in the field.

Short-Term Effects on Major Asset Classes

In the weeks leading up to the election and the subsequent week, major asset classes experienced varying levels of volatility. Stocks, bonds, the dollar, oil, gold, silver, and even Bitcoin were all under scrutiny.

While some asset classes were disrupted and changed direction, gold and silver remained relatively stable, unaffected by the election’s outcome.

Analysis of Gold’s Long-Term Prospects

To assess the potential impact of the new presidential regime on the gold market, it is essential to consider the historical bull markets in gold.

Both the 1970s and the current bull market, which began around the early 2000s, share a common factor: negative real interest rates. Negative real interest rates occur when inflation surpasses the nominal interest rate. This has been a significant driver of gold prices in the past.

Therefore, regardless of the specific policies implemented by the new regime, as long as negative real rates persist, the bull market in gold is likely to continue.

The Federal Reserve’s Role in the Gold Market

The actions of the Federal Reserve have a considerable impact on the gold market. Over the years, the Fed has responded to economic emergencies by implementing strategies such as cutting interest rates and increasing currency creation. These actions are intended to stimulate the economy and boost asset prices.

Despite critics questioning the effectiveness and potential consequences of these measures, the Fed has shown a continuous inclination to employ them, doubling down on negative real rates.

Anticipating Inflation and Currency Supply

One crucial factor in determining gold prices is the relationship between currency supply and inflation rates.

M2 currency supply, which measures the amount of money in circulation, has a significant impact on inflation. After a period of decline, M2 has been rising year-over-year for the past 18 months. This suggests that inflation may start to increase.

As inflation and negative real rates often go hand in hand, this could further contribute to the bullish trend in the gold market.

Expert Insights and Conclusion

Experts in the field express their opinions on the current state of the gold market and the potential future.

They highlight the larger structural forces at play, which they believe will have a more significant influence on the gold market than any specific presidential regime.

They also emphasize the importance of being prepared for potential market shifts and the role of gold as a safe haven asset.

In conclusion, while the new presidential regime will undoubtedly have its impact on the economy and asset classes, the gold market seems poised to withstand any potential turbulence.

The historical significance of negative real interest rates, the Federal Reserve’s strategies, and the anticipation of increasing inflation all point to a continued bullish trend for gold.

Investors should remain vigilant and may want to consider gold as a potential hedge against inflation and economic uncertainties.