What Trump gave gold and took away from gold and what direction of metal is determined by Joe Biden?

IBIS InGold Editorial Office

02. 02. 2021

Joe Biden has been officially US President for a few days. And right after he had sat in the oval study, the price of gold rose. What exactly will Kamala Harris and Joe Biden bring to the precious metals market and the US economy? Arkadiusz Sieroń, university professor and analyst, tried to answer this question in his prediction. In the following text, we will try to explain his thesis. 

 

But to get to the question of what the prices of precious metals will be under the Biden government, we must take a few steps back – to the days of Donald Trump´s office. What has the controversial politician done with the price of gold? 

Although we can criticize him in many other areas, the US president has (perhaps unintentionally) advocated a significant rise in precious metal prices. Since 2017, the price of gold in US dollars has risen by more than 50%, even though it fell sharply after the then elections. 

The fact that Trump is now saying goodbye to the function may affect the development of the price of gold and the course of investment in precious metals. Sieroń claims that he is not a supporter of a strong bonding of policy with the market situation, but is now inclined to believe that he could be wrong in this particular case. And for two reasons.

The first one is the fact that Biden will reverse Trump´s big decisions at the very beginning of his term. The construction of a border wall, travel restrictions for the population of the Muslim minorities or, for example, withdrawal from the Paris Climate Agreement will be abolished. 

The second reason is that the 46th US president will proceed to a mammoth massage of the economic situation by changing fiscal policy. In support of the economy during the pandemic, about $ 1.9 trillion should be released in the first wave, but in the future, Biden plans to release another 2 trillion to promote clean energy. Janet Yellen, who will become a finance minister, said that if the states wanted to save the economy, action must be taken in a big way. According to her, the results appear to outweigh the costs.

 

What about the gold?

Despite these words from the new minister, Professor Sieroń thinks that massive spending will actually increase the GDP of the United States of America in a very short term. In such a case, the price of gold will undoubtedly rise due to high debts.

Higher debts are the reason why the economy is fragile, and why a certain normalisation of monetary policy becomes a daunting task. Sieroń comes here with a simple logic: The higher the debts are, the lower the interest rates must be in order to manage the cost of servicing the original debts. Welcome to the debt trap. In order to survive in it, the FED will keep the interest rate of federal funds at almost zero. And the lower this level will be, the better for gold.

 

And what else does such stimulation of the economy feed?

Correct! Inflation. As the money goes to save the economy, it is very likely that the value of the dollar as a currency will go down again. In this way, people will want to protect the value of their money and look for safe investments. Gold will thus become very attractive again. 

Thus, the future for the gold shines like metal itself, however, it is necessary to take into account that investors will want to take a little risk in the near (and relatively short) time within the illusory feeling of dawn for better times. 

However, when this illusion dissipates and the effects of fiscal stimulus and the economic crisis land, everyone will seek their safe harbour. After all, this is also evidenced by the fact that far-sighted investors have reached for gold on the day of the inauguration and are still buying now, when the price is still favourable.