US Election 2024: Gold prices set to shine regardless of winner as fiscal deficit balloons: Report

Gold prices have been climbing to new highs in recent sessions amid escalating geopolitical tensions, trade wars between major global economies, steady consumer demand, expectations of easing monetary policies, and uncertainty surrounding the upcoming US presidential election.

In the previous trading session, US spot gold prices reached a fresh all-time high of $2,790 per ounce. In October alone, gold price has increased nearly 6%, bringing year-to-date gains to 35.16%, and putting bullion on track for its best annual performance since 1979.

Additionally, record equity market valuations are indirectly driving demand for gold as a portfolio diversifier. Significant purchases of gold by emerging market central banks, particularly by China, are also pushing prices to record highs.

For centuries, gold has been prized for its scarcity and intrinsic value. Unlike fiat currencies susceptible to inflation and government policies, gold tends to maintain or appreciate its value over time. Consequently, investors often turn to gold as a reliable investment during periods of uncertainty.

Growing US fiscal deficit expected to drive up gold prices further

Looking ahead, prices may remain elevated as the US presidential election outcome, regardless of who wins, is likely to further support the ongoing rally in gold prices, said domestic brokerage firm Elara Capital. 

The brokerage noted that the 2024 US elections are shaping up to be one of the closest in modern times, and regardless of the outcome, the US fiscal outlook is expected to worsen. As per the IMF, the fiscal deficit for the US is expected to be higher than that of the emerging markets in the next five years.

The growing fiscal pressure, particularly if either political party secures sweeping control, could result in a significantly higher deficit. Elara Capital notes that the Federal Reserve is likely to adopt a more hawkish stance under the new government—more so in the event of a Republican sweep—unless clear growth risks emerge.

In this context, gold prices are expected to benefit, serving as a hedge against both fiscal and geopolitical uncertainties. Elara Capital forecasts a 10% upside for gold over the next 12 months, highlighting contributing factors such as rising interest payments on US debt, escalating fiscal pressures, and the impact of increasing USD yields.

In the medium-to-long term, it expects the appeal of the US Dollar to wane if debt burden rises and US inflation remains sticky above target by 100-150 bps. "For equities, a Trump win is more favourable, in our view (keeping aside his tariff plans) compared to Harris, who plans to raise corporate taxes and capital gains taxes," the brokerage added. 

Elara Capital continues to express aversion to US duration bonds, favouring cash (specifically US 3-month Treasury bills) as the preferred segment of the UST yield curve. The recent increase in longer-term US yields is largely attributed to potential fiscal risks facing the country.

It said the positive impact of rate cuts in Asia will be offset by potentially firmer financial conditions in the US. Regarding base metals, Elara views them as more influenced by China than by the US. If more-than-expected tariffs are imposed by the US on China, commodities may see a downside, it added.

On the monetary policy front, Elara anticipates that the Federal Reserve will proceed with a 25-basis point cut in November, despite steady jobs data and robust growth in Q3.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.