There is a new sheriff in town and he appears to waste no time in making various rearrangements. Will the new order of things support gold’s price or will it crash the precious metal?
What a blitzkrieg! President Joe Biden means business and he is proving that by signing several executive orders. Since his inauguration on January 20, he has introduced several policies. Among them is the mandating of masks on federal property, in airports, and also on certain forms of public transportation. He has also put an end to travel bans on some countries.
The president of the United States has also terminated the construction of the wall at the Mexican border and stopped the withdrawal from the World Health Organization. He is also keen to ensure that the US is back on the path to rejoining the Paris climate accord.
As it stands now, there are reversals of many of Trump’s policies. President Biden’s actions should not materially impact the gold price and markets. However, if he manages to restore massive confidence in the US government, he could limit the haven demand for gold.
Biden also modified the government’s stand on the epidemic in the United States, treating it quite seriously. He implemented multiple executive actions intended to speed up the production of COVID-19 supplies, which will increase testing capacity, and maybe reducing the spread of the virus.
All of the actions taken by the president show that fighting the health crisis is his main priority and that he wants to deliver a centralized federal response to the epidemiological threat. It is now high time to deal with this menace that has infected nearly 25 million Americans and killed at least 400,000.
The United States equity markets welcomed the president’s actions by surging to new record highs. Nevertheless, the gains and increased risk appetite among investors did not prevent the modest spike in gold prices in the aftermath of the recent inauguration.
As the market charts show, the price of the precious metal surged to above $1,860 on January 21.
Impact On The Gold Market
But, how do all these rearrangements impact the gold market in the mid and long-term? Notably, the mainstream economists and the markets anticipate that Biden’s strategies and actions, including the fiscal stimulus, will speed up the fight against the health crisis and might revive the economy. The positive sentiment may be negative for the precious yellow metal.
One analyst said:
“I believe that people overestimate the positive economic impact of the upcoming stimulus. After all, many people have money, but they can’t spend it due to widespread lockdowns, and there will be a huge price to pay for aid coming in the form of a ballooned fiscal deficit and public debt. But the problem is that neither money nor debt constitutes the real wealth, so I remain skeptical about the benefits of another government’s fiscal package.”
Nonetheless, it might be irrelevant here. The market might like the idea of additional stimulus, so the bonanza in the financial markets can last. Expectations of higher economic growth and accompanying stronger risk appetite may hurt gold.
At some point, the limitation and fragility of the debt inspired growth might become clear since you can never print wealth. Investors will eventually face the severe reality of a debt trap.
It will be delayed, but there is a reaction to the growing debt and the risk of higher inflation. The reaction, in turn, should be beneficial for the precious metal. Just a while ago, some analysts and investors were afraid that US fiscal policy will be less dovish in 2021.
But, with President Biden’s fiscal stimulus in the cards, the fiscal policy might become more lavish later this year compared to last year. It might also become a supportive factor for the price of gold, particularly considering that it might force the Fed to remain quite accommodating too.