Prediction: Gold will continue to rise regardless of who wins the US presidential election

Gold has soared this year and is having its best run since 1979. The SPDR Gold Trust (GLD 0.55%) is up more than 32%, beating the broader market’s bull run. Gold has likely benefited from geopolitical tensions in Ukraine and the Middle East, which have created a lot of uncertainty.

Gold can also serve as a hedge inflation. But I also think the looming US presidential election and the country’s finances may have something to do with gold’s rise. Whether Vice President Kamala Harris or former President Donald Trump triumph on November 5, I predict gold will continue its impressive advance.

This is why.

Fiscal recklessness

In recent weeks, some of the most talented investors have unveiled investment positions and theorems that undermine conventional wisdom. Billionaire investor Stanley Druckenmiller revealed he’s holding on significant bets against US government bonds. Another billionaire investor, Paul Tudor Jones, said on CNBC that “all roads lead to inflation.”

The statements appear to contradict current economic data, which generally indicates that inflation is getting lower, although not always linearly. However, Druckenmiller and Jones are concerned that the US government has lost control of its finances. This isn’t exactly a new view.

The gross U.S. national debt is approaching $36 trillion, and the federal deficit for fiscal year 2024 now stands at over $1.8 trillion. Blame it gross domestic product (GDP) amounts to 124%. This means that the government spends a lot of money every year on interest payments to maintain debt levels. This year, the government has spent $882 billion on interest payments, or 13% of total budget expenditure.

Investors like Druckenmiller and Jones fear that the situation will soon – if not already – become untenable and spill over into the future. bond market. Regardless of who wins the election, Harris and Trump are expected to try to implement policies that could be inflationary and worsen the country’s financial position.

The nonpartisan Committee for a Responsible Budget predicts that Harris would increase the national debt by $3.5 trillion through 2035, based on the central case of their analysis. Trump would increase the national debt by $7.5 trillion.

The budget model from the Wharton School of the University of Pennsylvania estimates that the US debt-to-GDP ratio cannot exceed 200%. No amount of tax increases or spending cuts would prevent bankruptcy at that level, and this type of bankruptcy would be bigger and more damaging than ever before.

Why gold will continue to move higher

Gold is likely to benefit from fiscal uncertainty that will only worsen unless lawmakers take action. However, it is unclear whether lawmakers will be able to resolve the situation given how large the debt has become and how many problems need to be addressed in the US. If bond investors begin to doubt the government’s ability to repay its debts, bonds will decline and yields will rise, potentially causing investors to flock to safer physical assets, such as gold.

It remains to be seen whether that will happen. Jones also said he thinks the government will essentially have to blow its way out of this situation by keeping rates low, letting inflation run higher and then generating nominal growth above inflation.

Gold is seen as a key hedge against inflation. Between the fiscal uncertainty, the fact that the future president will likely worsen the debt problem, and the path to potentially correcting these problems, gold should continue to rise regardless of who wins the election.