After all the unexpected turns of 2020, making predictions for 2021 may seem like a tough prospect. For investors, one question that has been on everyone’s mind is how the outcome of the 2020 elections could impact the economy. Does Joe Biden winning the Whitehouse mean his political opponents will flock to precious metals in search of stability (and assuming he’ll tank the economy)?
Whether you’re looking for a gold investment guide yourself, or just a general overview of the lay of the land, it’s a good idea to understand the ways in which precious metals and politics may intersect in 2021.
Politics and Precious Metals
Uncertainty has ruled in US politics of late. While Biden’s win was clear relatively quickly, the Senate picture remained unresolved until John Ossof and Raphael Warnock won in Georgia on January 5th. Even after the events at the Capitol on the 6th, many Republicans continued to doubt that the results of the presidential outcome were legitimate. Now that Trump’s second impeachment trial is over, the state of play in American politics may become clearer for 2021. Will some Republicans, fearing the worst, move money into precious metals?
There is a history linking party and precious metals in American politics dating back to at least the nineteenth century. William Jennings Bryan, the three-time Democratic presidential nominee, based his first campaign in 1896 around increasing the money supply in the United States. He aimed to switch from an effective gold standard to “bimetalism,” or a dual silver and gold standard. In his acceptance speech at the nominating convention that year, he uttered the famous line “you shall not crucify mankind on a cross of gold.” While a crowd pleaser, Jennings Bryan lost in 1896, again in 1900, and for a final time in 1908. The gold standard was officially adopted in 1900. (1)
From then until now, political associations with precious metals have changed. At the time of Jennings Bryan’s runs, those on the right may have favored gold because it aligned them with Britain and the upper class. Later, after Franklin Delano Roosevelt took the country off the gold standard, conservative Americans began to embrace gold in a more populist way, signaling a distrust in government-backed currency and favoring something tangible. This history helps to explain how politics influences people’s investment choices. (2)
While many might benefit from asking their accountant if a gold IRA has tax advantages for them, some may associate gold with the Republican party based on more recent history. The populist tendency outlined above helps to explain the state of affairs in 2009, as laid out in a Politico article from the time. (2)
According to the article, a mutually reinforcing relationship developed between Fox News viewers, worried about the state of the economy as Barack Obama took over the presidency, and the financial interests of the network. Several of its main hosts’ primetime shows, including Bill O’Reilly and Glenn Beck, received ad buys from companies that sold gold at a markup. At the same time, the hosts trumpeted the value of assets like gold on their shows. While gold and other precious metals have long been seen as a safe bet in turbulent times, this showcased how political leanings might influence the behavior of certain investors. (2)
Safe Haven Investments
Many investors point to gold’s safe, tangible nature when asked why they want to invest in it or other precious metals. It’s something they can hold onto, and as long as they have the ability to store it, they can feel entirely secure about it. While there are also index funds tied to gold bullion, the principle remains similar.
Deciding which investments are appropriate for a given individual should always be done with a professional financial advisor present. It is worth knowing, though, that economists have performed recent analyses on how different so-called “safe haven” investments work. A safe haven investment is generally understood to be an asset which investors use to “secure capital” during uncertain moments. These assets are often chosen because investors believe them to have “lower risk and higher liquidity during economic and financial turmoil.” (3)
Do gold, silver, and other precious metals really offer the safety to investors that many claim? In an article from 2019, several researchers worked to test how various safe havens performed during the uncertainty around Trump’s election in 2016. According to their analysis:
- Oil was unstable as a safe haven.
- Gold could act as a long-term safe haven.
- Silver could act as a medium-term safe haven.
- Bitcoin served as a short-term safe haven. (4)
However, 2016 was five years ago, so the question remains: what are forecasters saying about the coming year, and how will the political environment will impact it?
Precious Metals, Clean Energy, and Biden in 2021
Credit Suisse, in their investment outlook for 2021, see the possibility of growth in gold prices in the coming year. They “prefer diversified exposure including both cyclical segments, i.e. energy and base metals, as well as precious metals.” The report’s authors also see potential in gold: “we would not be surprised to see new all-time highs in gold, especially if US real yields drifted even deeper into negative territory.” (5)
While Republicans might move to precious metals if they think that Biden will tank the economy, some analysts expect the Biden presidency to positively impact precious and base metal prices for a different reason: renewable energy and economic stimulus. (6)(7)
An increased emphasis on solar power, for example, could lead to increases in the price of silver, since it’s used in the manufacturing process for the photovoltaic cells in solar panels. 5G will also require microchips that use silver, and the list goes on from there. Major stimulus spending and a focus on priorities like these could contribute to rising prices for both base and precious metals. (6)(7)
As always, be sure to consult with a trusted professional before making any investment decisions. It remains to be seen whether or not Republicans will jump into precious metals now that Biden is president. However, there is some evidence to suggest that a Biden presidency and Democratic control of Congress could lead to those investments doing well, though it may not be what some Republican voters would expect.