Gold price rises sharply after US elections: why?

The Democrats' victory in the US midterm elections is causing considerable movements in the financial markets. Gold in particular benefits from the political uncertainty in the United States. The gold price has risen by 2.4 percent to about $4,025 per troy ounce.

Meanwhile, the US dollar is losing ground and technology stocks are under pressure. Bitcoin (BTC) also got a big hit last night, but managed to make up for the loss within a few hours.

Investors are trying to assess what the new power relations in Washington mean for President Donald Trump's economic policy.

The gold price has risen by 2.4 percent today and is now at about $4,025 per troy ounce. The precious metal thus fully compensated for Tuesday's slight decline. The increase follows the Democrats' victory in the US midterm elections, which creates new uncertainty in the financial markets.

Now that the Democrats get their hands on both the House of Representatives and the Senate, the balance of power in Washington is changing significantly. President Donald Trump remains at the helm, but can no longer get his economic plans through Congress. Investors note that the Democrats will hold back some of his tax cuts and spending plans.

That political uncertainty makes gold more attractive. The precious metal is traditionally seen as a safe haven when investors have doubts about the economic outlook. At the same time, the gold price is supported by the weaker US dollar and falling interest rates on government bonds.

The US dollar lost ground against all ten major currencies on Wednesday. At the same time, US government bonds rose in value, causing interest rates to fall. Investors expect the Democrats to be able to block some of Trump's tax cuts and spending plans. As a result, the US government would have to borrow less money.

Both developments are beneficial for gold. A weaker dollar makes the precious metal cheaper for foreign buyers. At the same time, a lower bond yield ensures that investors lose less interest income when they choose gold, which itself does not yield interest.

The election results were also clearly noticeable on the crypto market.

The Bitcoin price fell by almost three percent last night when the first American polling stations closed and the magnitude of the Democratic victory became visible.

Around 4am Dutch time, Bitcoin dropped below $76,000. With this, the crypto currency reached its lowest level since mid-September.

But the sales pressure didn't last long. Buyers intervened and the Bitcoin price recovered almost completely within a few hours. BTC is now around $78,200.

The initial decline is linked to concerns about US crypto legislation. Trump has explicitly presented himself as a supporter of the sector and promised to relax regulations.

With a Democratic majority in Congress, new crypto-friendly laws can be harder to pass. However, Trump retains his right of veto and US regulators can continue to work on rules for the sector within their existing powers.