A Biden victory will drive inflation and gold prices higher - Saxo Bank
(Kitco News) - The precious metals market is expected to be rife with volatility ahead of the Nov. 3 general election, but one market analyst said that prices could generally trend higher as investors price in the growing possibility of Democratic nominee Joe Biden becoming the next president.
In a recent comment to Kitco News, Ole Hansen, head of commodity strategy at Saxo Bank, said that gold prices could struggle in the near-term as markets continue to react to President Donald Trump shutting down any prospects of a comprehensive fiscal stimulus package; however, he added that gold could find a bid closer to the election if Bidden continues to solidify his lead in the race to the White House.
In a report published earlier this week, Hansen noted that markets could see a Biden victory as more inflationary, and that is what will ultimately propel gold prices higher.
Quoting, Saxo Bank ’s current strategists Hansen noted: “The argument here is that the Democrats are set to take back the presidency and the Senate, therefore paving the way for a massive multi-trillion stimulus passed in the first one hundred days of a Biden administration, taking U.S. inflation much higher while leaving the Fed policy rate pegged near zero.”
Hansen noted that investment demand in gold-backed exchange-traded products will continue to dominate the market and drive prices higher. He noted that investment demand remained strong through September even as prices saw a sharp decline.
“Investors, asset managers and pension funds are increasingly waking up to the need for tail-end protection against inflation and it has led a continued increase throughout the year to the current record above 111 million ounces,” he said.
Driving the demand for gold is the fact that real yields will continue to fall as the Federal Reserve holds interest rates at the zero-bound range in an environment of rising inflation.
Although Hansen sees potential for gold prices to go higher, he added that it is too early to tell if the precious metal can regain the $2,000 level. He said that a lot of investors could be waiting on the sidelines for the election dust to settle before jumping back into the market.