The Biden Victory Scenario

With two weeks to go before Election Day, Joe Biden solidly leads the presidential race polls. Some investment advisors predict a Biden win would benefit gold, particularly if Democrats regain control of the Senate, which would allow Biden to push through his agenda.

Get in on gold.

“We expect that a Blue Wave would lead to global reflation, which would be the most positive outcome for gold bugs,” said T.D. Securities, anticipating that “investment appetite for gold will continue to rise, particularly in the period that follows the U.S. election.”

Biden and Congressional Democrats favor a substantial stimulus program to help ailing consumers and businesses. That would help pull the economy out of its COVID-induced slump and might reflate the economy. With the Federal Reserve committed to holding short term interests down, a rise in inflation would imply lower real interest rates, even negative real rates. (The real rate accounts for inflation.) That would be a positive for gold which tends to move inversely with interest rates.

If Biden does win, there is also the risk that the stock market becomes fearful of a return to higher corporate taxes and tougher corporate regulations, which the Democratic candidate favors. That could send investors running from stocks to safer investments. 

A Democratic victory “would be supportive for risk assets but would also entail a larger deficit outlook and an increased risk of inflation, which implies lower real rates”, Olivier Konzeoue, a trader at Saxo Markets told the Financial Times. “Overall, [this is] an environment that would in our opinion make gold more attractive.”

Get in on gold.