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Biden Fiscal Agenda Could Prove Beneficial for Gold

January 15, 2021   |   Posted By Isaac Nuriani

There’s no doubt we’re now looking at a Biden administration and a Democratic congress. Some conservative voters believed the election could be overturned, but I’m afraid we are now past that point. Let’s look at how it all unfolded.

The events of Jan. 6 in our nation’s capital quashed most lingering hopes that results of the Nov. 3 general election would be overturned. And those hopes quickly diminished even further in the wake of the Capitol riots. Immediately following that event, election objectors, such as now-lame-duck-Georgia Sen. Kelly Loeffler and Indiana Sen. Mike Braun, reversed course on their original intentions to challenge the results. Congress overwhelmingly officially certified Biden’s Electoral College victory. Recognizing the fight was over, President Trump conceded last Thursday that Biden would indeed be the new President of the United States.

The day before the Capitol debacle, it was interesting to watch the Georgia special runoff election to determine who would represent that state in the U.S. Senate. When the dust finally settled on the heavily watched and very-contentious races, both Democratic contenders – Raphael Warnock and Jon Ossoff – emerged victorious. With their wins, the balance of power in the U.S. Senate tips slightly in favor of the Democratic Party. Warnock and Ossoff each will take office later this month after the Georgia Secretary of State certifies the election results.

Here’s what that means: With the wins by Warnock and Ossoff, party representation in the Senate will be split down the middle – 50 Republicans and 50 Democrats (including two Independents who caucus with the Democrats). When the Senate votes and there’s a deadlock along party lines, the deciding vote goes to Vice President-elect Kamala Harris. I think it’s clear which party will benefit from her role as tiebreaker.

The bottom line is that, in addition to having a Democrat in the White House and clear Democratic control of the House of Representatives, we also will have a Democratic-tilting Senate. People may argue whether we’re seeing the results of a so-called “blue wave” or something less definitive. But I don’t believe anyone can still debate that the Democratic Party soon will be in charge of the national political agenda in a way they haven’t been since 2010.

And based on the fiscal and monetary climates some analysts are forecasting, it’s possible these changes in our government could have far-reaching implications for the performance of gold and silver in the years to come.

Evidence Mounts: Will We See a Free-Spending Biden Administration?

During the general election campaign, the prospective fiscal outlooks of both the anticipated Trump and Biden agendas were heavily dissected. Analysts said a Trump victory might heap additional trillions on the existing national debt pile. But some of those same analysts have speculated that now-President-elect Biden’s spending initiatives could trigger even higher deficits and a higher national debt than a second-term Trump would have.

A study conducted last year by the nonpartisan Committee for a Responsible Federal Budget (CRFB) reached what I think is a startling conclusion: The Biden agenda could add anywhere from $5.6 trillion to as much as $8.3 trillion to the national debt over the next 10 years.[1] Biden spending priorities are as numerous as they are expensive, including childcare and education, health care, disability benefits, infrastructure, climate change and research. As outlined in several media outlets, including the Washington Post, Biden’s climate change plan alone is estimated to cost roughly 2 trillion dollars.[2]

And this agenda does not include Biden’s pandemic-specific stimulus initiatives, which he plans to roll out immediately upon taking office. On Thursday, the president-elect outlined his COVID relief plan which features an additional 1,400 dollars in direct payments to most Americans and will cost nearly 2 trillion dollars.[3]

Another possible clue that suggests a potentially spendthrift Biden administration is his recent nomination of former Federal Reserve Chair Janet Yellen to serve as Secretary of the Treasury. In her prior capacity overseeing the Fed, Yellen earned a reputation as a monetary policy dove, favoring low interest rates and an expansionary outlook. Speaking recently to the Wall Street Journal, Yellen indicated she will be administering fiscal policy with a similarly dovish touch.[4] “This is not a good time to have fiscal policy switch from being accommodative to creating a drag,” Yellen said. “That’s what happened [last decade], and it retarded the recovery.”

For its part, MoneyWeek recently emphasized the importance Yellen’s role as Treasury secretary could have in helping to facilitate Biden’s spending plans. The weekly magazine regards Yellen’s nomination as “incredibly significant,” because it means “the former head of the world’s most powerful central bank will be running the fiscal policy of the world’s most important economy.”[5] In MoneyWeek’s view, although “Congress might be gridlocked … it’s hard to believe that Yellen won’t have the clout to drive through at least moderately ambitious spending plans.”

Analyst: “Sweep by Democrats” Is “Positive for Gold”

The outlook for Biden-era fiscal and monetary policy appears to be coming into view. Does that information provide any possible guidance on the outlook for gold and silver?

We don’t know anything for sure, of course. The reality is that there will be a lot of economic influences in play through the near term. But some analysts seem to think a Biden presidency bodes well for gold and thereby also could potentially be good for all precious metals.

In a recent note detailed by S&P Global Market Intelligence, Credit Suisse analyst Fahad Tariq suggested that a Democratic-controlled Congress will further a gold-favorable Biden fiscal agenda.[6] Tariq notes that U.S. election results typically have only a minimal impact on gold. But he said a “clean sweep by Democrats” this time around is “positive for gold.” On the monetary policy side, Credit Suisse sees a highly accommodative posture remaining in place due to what it forecasts as no more than a “gradual” recovery from the pandemic. “A low rate environment and an elevated gold price environment are here to stay at least for the next few years,” Tariq said.

The same S&P Global piece also gives us the assessment of HSBC analyst James Steel that gold is well-positioned to strengthen in the wake of the recent presidential and congressional election results. Steel believes these results will produce continued energy for gold expressly because of the greater likelihood we’ll now see a “potentially more progressive and greater spending agenda.”

Other megabank analysts project gold will thrive at least through the new year. For example, Citibank recently said it expects to see gold reach a new all-time high of 2,500 dollars per ounce in 2021.[7] Goldman Sachs’ latest 2021 gold price target is a little lower at 2,300 dollars – but still a new high for the yellow metal.

If you read the articles I listed here and others, you will see that the “usual suspect” justifications for those near-term gold price targets essentially are the same as justifications cited by analysts who generally see a productive gold environment for the foreseeable future. They all want Americans to know they believe there will be more stimulus and a continuation of an overall gold-favorable fiscal and monetary climate – a climate I believe could become even more favorable for all precious metals against the backdrop of a Biden presidency, a Biden fiscal agenda and a Democratic Congress.

 

[1] Committee for a Responsible Federal Budget, crfb.org, “The Cost of the Trump and Biden Campaign Plans” (October 7, 2020, accessed 1/14/21).

[2] Steven Mufson, The Washington Post, “Biden has massive climate plans. Where will he find the money to fund them?” (December 22, 2020, accessed 1/14/21).

[3] Thomas Franck, CNBC.com, “Biden’s $1.9 trillion Covid relief plan calls for stimulus checks, unemployment support and more” (January 14, 2021, accessed 1/14/21).

[4] Eric Levitz, New York Magazine, “Biden to Nominate Janet Yellen for Treasury Secretary” (November 23, 2020, accessed 1/14/21).

[5] John Stepek, MoneyWeek, “Prepare your portfolio for a return of the Roaring ’20s” (December 4, 2020, accessed 1/14/21).

[6] Jacob Holzman, S&P Global Market Intelligence, “Precious metals hold, base metals climb on Democratic wins in Ga. Senate runoff” (January 7, 2021, accessed 1/14/21).

[7] Lizzy Gurdus, CNBC.com, “Gold to $2,500: Two ETF Analysts Break Down Citi’s Bullish Call for 2021” (November 25, 2020, accessed 1/14/21).

[8] Ben Winck, Business Insider, “Gold will soar 22% next year as investors protect against rising inflation, Goldman Sachs says” (November 17, 2020, accessed 1/14/21).

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