Gold has experienced a rapid surge this year, achieving its best performance since 1979. The SPDR Gold Trust (GLD) has risen more than 32%, outperforming the market. Geopolitical tensions and its role as a hedge against inflation could continue to drive gold prices higher. The upcoming U.S. presidential election and the country’s fiscal situation may also be related to gold’s upward trajectory. Whether it’s Vice President Kamala Harris or former President Donald Trump winning on November 5, predictions suggest that gold will continue its impressive gains for the following reasons.
In recent weeks, some of the most successful investors have announced investment positions and arguments that contradict conventional wisdom. Billionaire investor Stanley Druckenmiller revealed that he holds substantial bearish bets on U.S. Treasury bonds. Another billionaire investor, Paul Tudor Jones, stated in an interview that “all roads lead to inflation.”
These statements seem to contradict current economic data, which generally suggests that inflation is declining, though not always in a linear fashion. However, Druckenmiller and Jones are concerned that the U.S. government has lost control over its finances, a situation that is not new.
The total U.S. national debt is approaching $36 trillion, and the federal deficit for the fiscal year 2024 has already surpassed $1.8 trillion. Debt now accounts for 124% of GDP, meaning the government must allocate significant funds each year to pay interest on this debt. This year, the government has spent $882 billion on interest payments, which represents 13% of total budget expenditures.
Druckenmiller and other investors, including Jones, are worried that the situation may soon become unsustainable (if it is not already) and could spill over into the bond market.
Gold may increase due to fiscal uncertainty, which is likely to worsen unless lawmakers take action. However, given the immense scale of debt and the numerous issues the U.S. needs to address, it is unclear whether lawmakers can effectively resolve these problems. If bond investors begin to doubt the government’s ability to repay its debts, bond prices will fall, and bond yields will soar, potentially driving investors toward safer tangible assets like gold. Gold is seen as a key tool for hedging against inflation. Amid fiscal uncertainty, escalating debt issues, and potential pathways to address these problems—regardless of who wins the election—gold prices are expected to continue rising.
