In an election that saw some of the highest turnout for decades, millions of US voters took to the polls or submitted postal votes, and decided not to give President Trump four more years. Instead, his opponent, Democrat challenger and former Vice President Joe Biden proved to be victorious.
On the surface, the outcome has been welcomed by many, who claim the great gold bull run of recent years is beginning to finally wane. But great challenges remain on the horizon for the new President-elect and his administration, while the UK faces its own domestic challenges. Not least of all, most of the world is still in the grip of a COVID-19-induced downturn.
Gold has outshone numerous assets over recent years – here’s why it’s possible it may continue to do so.
Divisive elections are over
This year saw one of the most polarised elections in US political history, with Joe Biden managing to win an estimated 306 electoral college votes to President Trump’s 232. When President Trump first came to office, he won a near-identical number of electoral college votes, dubbing his 2016 victory a ‘landslide’.
But just because the election is over and President Trump’s time in the White House is coming to an end, that doesn’t mean there isn’t room for volatility and, most importantly, an opportunity for gold prices to continue to appreciate.
The price of gold has managed to double in sterling terms since 2015, and the main drivers are unsurprising. Brexit has pummelled the pound, while President Trump’s trade war with China dented market confidence. The COVID-19 scare in March helped push gold prices even further – in the summer, gold touched on £1,500 per troy ounce.
In the spring, Bank of America forecast that the price of gold priced in US dollars would hit $3,000 per troy ounce by October 2021. If exchange rates remain relatively stable until then, this would mean gold could be worth as much as £2,400 or so by this time next year.
Drivers of a gold bull remain
The election is over, but unsubstantiated conspiracy theories abound in the US about voter fraud. There is also concern about the US being able to stem an ongoing third wave of COVID-19 cases, as the Trump administration has been reluctant to allow an easy transition to occur with President-elect Biden’s team.
Over in the UK, the clock is ticking down to the next major Brexit deadline. A crucial vote on Brexit in the European Parliament may be delayed until 28th December, just three days before the UK’s transition period ends. This suggests Brexit could send jitters through markets well into the Christmas and New Year with nail-biting developments to be deliberated over at the eleventh hour. These factors are supportive of an upward trajectory in gold prices moving into 2021.
The emergence of various COVID-19 vaccines with varying degrees of effectiveness has restored confidence in riskier assets such as stocks and caused gold to fall slightly. Even so, it remains to be seen how quickly these can be approved for effective use. Brexit, an unstable political environment in the United States or a dramatic worsening in the global economy could easily hit the markets before anything meaningful could be done to mitigate it.
Gold may be pausing for now
Traders in the gold markets may be able to see the signs of a short pause, before the price moves higher again in the coming months. As gold is often used as a gauge of market stress, its price often peaks in sharp, sudden spikes, as opposed to the slow rounded tops in stock markets, which can take many weeks or months to form.
The latest peak in the pre-election period looks closer to an interim high, to be superseded imminently by a fall, suggesting that buyers may be waiting on a dip as a buying opportunity before cashing in again. If this is the case, it may be time to invest in this precious metal. Gold bull markets are often opportunities for great gains to be made.
British gold investors benefit from the fact that gold in sterling terms has already broken above the 2011 peak over the last year or so and remained above it for over a year, making it easier for the price to smash through higher highs. One major factor that will be likely to continue driving investors into gold is the use of quantitative easing (QE) by major central banks including the Federal Reserve in the US and the Bank of England.
Billions of dollars and pounds have been created artificially to stimulate economic growth, as interest rates simply can’t be cut any lower. Often dubbed a form of money printing, QE would increase the supply of pounds and dollars in the economy over time – the greater the supply, the lower the unit value of that currency moving forward.
As a result, QE would have the effect of diminishing the value of both the dollar and the pound. As the UK has additional pressure on its currency due to Brexit, this makes investment in British bullion a more lucrative bet than US bullion.
Investing in gold for 2021
If 2020 has been any guide, societal changes can persist for long periods of time. New issues can also spring up out of nowhere, disrupting the market equilibrium. When this does happen all at once, gold is often the beneficiary, as it often has been during previous times of crisis.
Whether it was the stagflation crisis of the 1970s, the financial crisis of the 2010s or the current COVID-19 crisis, gold has stayed firm when other assets buckled, and not only remained a store of value, but managed to appreciate in value as time has worn on.
But if you’re unsure how to invest in gold, UK Bullion has just the solution for you. Our dedicated team are still working hard despite lockdown at our offices in Wolverhampton, waiting to help with any enquiry you may have about investing in bullion and other precious metals.
If you’re keen to make an investment, or simply wish to speak to precious metals specialists, give us a call on 0800 090 3256 or fill in this online contact form today, and our team will be in touch imminently to assist you. We look forward to helping you.