Despite the terrific recovery in the U.S. stock market in the aftermath of the March 2020 crash, the big winner so far in the trading year is gold. With less than two trading months left until the end of the trading year, gold returned over 20% in the first nine months of the year.
A comparison with the S&P 500, the U.S. Aggregate Bond Index as measured by the Bloomberg Barclay, and the U.S. dollar shows that gold is the only one of the four assets to deliver double-digit growth. More precisely, it rose 24.29% in the first three quarters.
Today is Election Day in the United States. The outcome will seal the faith of the U.S. dollar for the rest of the year and, likely, of the U.S. equities as well.
Can gold sustain its gains? Is it possible for the price of gold to continue its rally? How will 2021 look like for gold in a Republican or Democrat Congress?
Gold – A True Store of Value
If we extend the performance analysis of the four asset classes for the past two decades, the distance between gold and the second-best performing asset increases dramatically. Therefore, we can say that gold acted as a true store of value in the last two decades.
It comes as no surprise if we consider that the global economy suffered from two major economic recession – one in 2008-2009, dubbed the Great Financial Crisis, and another one in 2020, the current COVID-19 pandemic.
Ahead of the U.S. elections, the advance the gold has on the other assets so far in the trading year makes it favorite to be the best performing asset class between the four mentioned here. A Republican win of the Congress and a Trump re-election will likely send the U.S. dollar higher. However, uncertainty also rises, and that means that the U.S. dollar will have a hard time gaining against gold.
On the other hand, a Democrat Congress and a Biden win will likely send the U.S. dollar lower. In this case, the price of gold will benefit from a declining U.S. dollar and the store of value attribute that many investors look for.
A mixed Congress, though, is the likely outcome of this election. In this case, the U.S. dollar’s fate and, to some extent, the gold’s fate depends on who wins the White House.
In the very short term, the quicker we find out the name of the elections’ outcome, the quicker the uncertainties end, while in the medium term, the market will focus on the promises made by the two parties and their candidates.
However, what matters for the price of gold is the long-term perspective. From this point of view, gold remained a true store of value in the last decades. Why would it be different now?