By Sean Kelly
These are questions we hear every day. They are on the minds of all our friends and clients. They are important questions and deserve straightforward, no-hedging answers.
We will do our best:
What happens to gold if Donald Trump win the elections?
What happens to gold if Joe Biden wins the election?
What happens to gold in a contested election, one that goes undecided for some time?
Let’s start with President Trump since there has often been a presumption that the incumbent has the easier path to victory, and indeed each of the three presidents before Trump served two terms.
We have a track record of almost four years of the Trump presidency to go on. It has been a remarkably bullish period for gold, providing ample reason to believe that a second Trump term would be bullish as well.
The price of gold was just over $1,200 when Trump took office in January 2017. By August 2020 it had reached a new all-time high of $2,089. The gold price climbed 74 percent.
The Federal debt exploded under Trump’s watch as well. When he came into office the gross federal debt was $19.940 trillion. Three years later in January 2020, even before the Covid programs, the debt stood $23.205 trillion. It had grown by more than a trillion dollars a year. Little wonder that gold moved higher during those years.
The best we can do to triangulate the impact of a possible Biden presidency is to use the Obama precedent. We know that changing times and conditions don’t make for reliable comparisons, but under the old political bromide that “personnel is policy,” we can expect Biden, surrounded already by Obama-era figures, to chart a similar course.
It is notable that Obama also presided over a powerful surge in gold prices. Gold, about $850 at the time of his 2009 inauguration, roared to a new all-time high of $1923 in less than three years, an increase of 126 percent.
As for the federal debt, it stood at $10.618 trillion at the beginning of Obama’s tenure. By the end of his second term it was $19.940 trillion. It had grown by $1.163 trillion a year. It is clear from both Biden’s campaign rhetorical and that of this surrogates, that Biden would strive to deliver what could be called a third Obama term. We assess that gold will continue to climb if Biden is elected.
We put no faith in candidates’ promises or policy agendas, party platforms, or campaign fiscal projections. It is not simply cynicism. The policies voiced on the campaign trail are always vague, and fail to account for legislative battles, vote-swapping, and shifting political priorities. It is also our acknowledgement that the future can deliver unforeseen challenges. In the last twenty year those have included the 9/11 attacks, the elective war in Iraq and regime change wars elsewhere, a housing bust and Quantitative Easing, and the pandemic shutdown.
Nevertheless, the non-partisan Committee for a Responsible Federal Budget has done the best that can be expected to extrapolate the budgetary impact of the next four years based on the discernible polices advanced under both men.
Excluding additional Covid measures, the CRFB’s mid-range estimate of the Trump plan foresees the national debt rise to 125 percent of GDP by 2030; under Biden’s plan it would rise slightly more, to 127 percent or GDP. Other than the basic trajectory, we think such estimates, ten years out, are far too speculative for the difference between the two to be dependable or, frankly, of much importance. Indeed, if the debt continues to grow by $2 – 3 trillion a year, it will double by 2030. That means a national debt of $55 – $60 trillion. The current debt is already producing lower investment and reduced growth, not to mention wiping out the middle class. For debt, at the stratospheric levels implied by deficits already on the horizon, to equal “only” 125 percent of GDP implies an economic growth rate unlike anything reasonably possible in an economy already over-burdened by debt.
These are all fantasy projections. They are seen to be even more surreal against the backdrop of a world is clearly growing weary of funding US debt. You have probably seen our recent commentary featuring economist Steven Roach at Yale (Ready for the 2021 Dollar Crash?), who makes the case that the dollar will crash by as much as 35 percent by the end of next year.
That is because not only has the debt climbed so high that the world is starting to ask uncomfortable questions about US solvency, but because the Federal Reserve’s money-printing spree is being met with wide-eyed horror by our creditors.
It is probably time for everyone to realize that the policies of the Federal Reserve do not really depend overmuch on who wins this election. Its policies serve its own interests and those of its cronies, independently of election results. Perhaps the best evidence for this assertion is to look at a parade of recent Federal Reserve chairmen. Alan Greenspan, the longest serving Fed chairman, was first appointed by Ronald Reagan, and then again by Bush the Elder, both Republicans. He was then reappointed twice by Bill Clinton, a Democrat, and then reappointed yet again, this time by Bush the Younger. Ben Bernanke was appointed to head the Fed by George W. Bush. Four years later he was reappointed by Barack Obama. So much for policy differences between the parties. The policies that really determine the value of the dollar, and boom and bust credit conditions for the entire nation, persist under Republicans and Democrats alike, no matter who is in the Oval Office or who controls Congress.
Stated differently, the corruption of the US monetary system has been a bi-partisan affair. The monetary tsunamis of this year are applauded on both sides of the aisle, just as were the monetary tidal waves of quantitative easing before it. Like comic book superheroes with their flying powers or unworldly strength, central bankers have but one superpower: they can print money. History shows that since that is all they can do, they will continue to use their superpower even as it destroys the underlying economy. We can point to the central bankers of Venezuela and Zimbabwe, or even of industrial powerhouse Germany in the 1920s.
Forgive us for having gone on at such length to say this. We think gold will rise dramatically if Trump is re-elected. We think gold will rise dramatically if Biden is elected. That is because the debt that has been run up has already been run up. The money that has been printed has already been printed.
It is all a fait accompli.
And finally, a few words on the prospect that hotly contested election results may not be known for days or weeks. A third of the people are already expecting some sort of violence or anarchy in the aftermath of the election. And why not? We have certainly had plenty of both heading in this election season. Politico reports that “about 1 in 5 Americans with a strong political affiliation says they are quite willing to endorse violence if the other party wins the presidency.” In the event of open violence of note, gold will certainly trend up.
The longer-term impact is even more important. Markets depend on stability. The capital that creates jobs and opportunities flows to where it is safe and welcome. Capital is skittish. It depends on the rule of law. The rule of law has historically been discernible in our elections. Stalin may or may not have actually said that “the people who cast the votes decide nothing. The people who count the votes decide everything.” If he didn’t say it, he should have, because it is true. Compromised election processes, whimsical voting provisions, an indifference to the real eligibility of countless voters and ballot verification, endless ballot counting of the “hanging chad” variety, armies of battling lawyers, and losers who fail to concede – these all color our elections in a third world hue. Over time they will compromise confidence in the US and its institutions.
Including its financial and monetary institutions. Like the dollar.
And gold will continue to rise.