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Biden could bankrupt gold stocks, warns expert, but what is the bullion's fate?

Kitco News

A full Democratic sweep would impose legislation that would make it difficult and less profitable for mining companies to operate, said Ryan Giannotto, director of research at GraniteShares.

“It’s going to be a very, very tough event for the mining industry overall, whether precious metals or diversified base mining if there is a full Democratic sweep. They’re going to try and effectively stranglehold these types of economic activity,” Giannotto told Kitco News. “The playbook here is what happened to the coal industry from 2008 to 2016. We saw massive loss of jobs, production cuts and several of the largest coal miners, Peabody, Patriot, Arch, all filed for bankruptcy and had to re-emerge.”

Giannotto said that the Democrats would pursue an “environmentally focused Dodd-Frank style” type of regulation, while not an outright ban on the industry, would make operations cost-prohibitive.

“An outright ban isn’t necessary to force these companies into bankruptcy. It’s really just to strangle their access to capital, their access to investors, that’s one hand, the second is direct regulation of their activities to try to make them economically unviable,” he said, adding that putting restraints on consumers would also harm the producers.

A Trump re-election would be more favorable to the mining and extractive industries, Giannotto said.

“It’s not going to be even a matter of preserving valuations, it’s just going to be trying to survive until some sort of divided government returns again,” he said, should a Trump re-election or divided government not take place.

However, the gold bullion should still perform well regardless of which party takes control of the White House, given that historically, gold has rallied in the years following an election for both Democratic and Republican victories.

Over the past 50 years, on average, gold has rallied 30.7% in the 24 months after a GOP win, and 20.8% following a Democrat win. These returns extend to 37.2% after 36 months, and 34.1% after 48 months for GOP victories, and 56.0% after 36 months, and 98.1% after 48 months for Democrat wins.

The reason gold outperforms in GOP victories in the initial 24 months because it takes time for policy expectations to filter through the market.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.