Prediction: Gold will continue to rise no matter who wins the US presidential election

Gold has soared this year and is enjoying its best rally since 1979. SPDR Gold Trust (GLD 0.55%) up more than 32% and ahead of the bullish trend in the broader market. Gold has likely benefited from geopolitical tensions in Ukraine and the Middle East, which have created greater uncertainty.

Gold can also serve as protection against inflation. But I also think the looming US presidential election and the country’s finances may have something to do with gold’s rally. Regardless of whether Vice President Kamala Harris or former President Donald Trump wins on November 5, I predict gold will continue its impressive rise.

Here’s why.

Financial recklessness

In recent weeks, some of the world’s most sophisticated investors have unveiled investment positions and theses that run counter to conventional wisdom. Billionaire investor Stanley Druckenmiller revealed that he has significant stakes against US Treasuries. Another billionaire investor, Paul Tudor Jones, said on CNBC that “all roads lead to inflation“

These statements appear to contradict current economic data, which generally suggests that inflation is falling, although not always linearly. However, Druckenmiller and Jones are concerned that the US government has lost control of its finances. This is not an entirely new approach.

The gross US national debt is approaching $36 trillion, and the federal budget deficit for fiscal year 2024 now exceeds $1.8 trillion. Duty to gross domestic product (GDP) is 124%. This means that the government spends a ton of money every year on interest payments to maintain the debt. This year, the government spent $882 billion on interest payments, or 13% of total budget expenditures.

Investors such as Druckenmiller and Jones are concerned that the situation will soon (if it has not already) become untenable and escalate into bond market. Regardless of who wins the election, Harris and Trump are expected to try to implement policies that could lead to inflation and worsen the country’s finances.

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

According to the budget model of the Wharton School of the University of Pennsylvania, the US debt-to-GDP ratio cannot exceed 200%. No amount of tax increases or spending cuts will prevent a default at this level, and this type of default will be larger and more damaging than ever.

Why gold will continue to rise

Gold is likely to benefit from financial uncertainty that will only worsen unless lawmakers act. However, it is unclear whether lawmakers will be able to fix the situation, given how big the debt is and how many problems remain to be solved in the United States. If bond investors begin to doubt the government’s ability to repay its debt, bonds will fall and yields will rise, potentially causing investors to move to safer physical assets such as gold.

It remains to be seen whether this will happen. Jones also said he believes the government will essentially have to use inflation to get out of this situation by keeping interest rates low, raising inflation, and then generating nominal growth that exceeds inflation.

Gold is seen as the key hedge against inflation. Given the financial uncertainty, the fact that the incoming president is likely to worsen debt problems, and the path to potential solutions to these problems, gold should continue to rise regardless of who wins the election.