While the US midterm elections are making headlines this morning, they did not have an impact on gold.

First and foremost, this is because the outcome is very much as expected. The Republicans keep the Senate while the Democrats take the House of Representatives.

Yet, even in case of a surprising outcome, we would not have expected a lasting impact on gold as, historically, it did not provide a good hedge against political risk – unless broader consequences for the economy or financial markets arose.

Most of the time, when gold had stronger moves around major elections, these were due to the economic backdrop rather than the political developments.

A case in point are the 2010 midterm elections when gold rallied more than 20 percent during the second half of the year, driven by a weaker US dollar and expectations of quantitative easing by the US Federal Reserve.

While such a rally looks unlikely against the current economic backdrop, we still see gold in the first phase of a longer-term recovery and believe that the normalisation of sentiment in the futures market should leave further upside even in the short term.

The second phase should start next year when we expect the US dollar to roll over, followed by a third phase of returning safe-haven demand once growth and inflation concerns creep into financial markets early in the next decade.

Any opinions expressed here are the author’s own.

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