World Gold Council in-depth analysis: With the US midterm elections approaching, how will it affect the gold market?

　　Ankai (Juan Carlos Artigas)

　　CEO of the Americas and Global Head of Research at the World Gold Council

　　Historical experience shows that regardless of the outcome of the midterm elections, gold prices are mainly influenced by the economic, fiscal, and monetary policies implemented after the election, rather than the results on election day itself. However, in the current environment of significantly heightened geoeconomic risks, market reactions may be more intense than in the past.

　　Key Takeaways

　　· Prediction markets indicate a higher likelihood that the Democratic Party will regain at least partial control of Congress.

　　· Overall, despite some remaining unfavorable factors, if the Democrats gain control of Congress, adjustments to AI regulatory policies and war appropriations, as well as the Trump administration’s potential broader use of executive power, are all expected to support gold prices.

　　· If the Republican Party achieves a greater than expected victory, the impact may be mixed, but it may further strengthen the determination of global investors (especially those outside the US) to allocate gold.

　　Overview of the Impact of US Midterm Elections on Gold

　　Investors often ask the question: Do US elections have a substantial impact on gold prices? In short, during periods of Democratic Party governance, US domestic demand for gold bars and coins tends to rise,1 but historically, US election results have not produced continuous or significant effects on gold prices.

　　This phenomenon is not surprising. Given the wide geographic distribution of global gold demand, the real key is whether the policy changes initiated by the election are significant enough to impact the global gold market and whether these effects can offset other global factors influencing gold prices.

　　Market reactions following Trump’s victories in both 2016 and 2024 precisely illustrated this point. The market expected a pro-growth, reflationary policy package, leading to a drop in gold prices while US stocks responded positively. However, as the market focus shifted from the election results to the subsequent implementation of these policies, the initial decline in gold was largely reversed, while the adjustment in US stocks, though present, was less than that in gold.

　　The “Republican Effect” Quickly Fades

　　Performance of Gold and the S&P 500 Index after Trump’s 2016 and 2024 Victories2

　　With the 2026 US midterm elections approaching, prediction markets currently lean towards the Democrats taking control of both the House and Senate. If the Democrats take the House, it will likely restrict the current administration’s legislative agenda and fiscal plans; gaining the Senate as well will intensify these constraints. The impact on gold prices will depend on how much these changes affect fiscal policy, market uncertainty, and the exercise of executive power.

　　Prediction Markets Bet on Democrats Regaining Control of Congress

　　Polymarket Platform: Implied Probabilities for Party Control of the House and Senate3

　　We believe that, all else being equal, policy gridlock could have multiple impacts on US policy, thereby affecting gold prices on several fronts:

　　· Fiscal Policy

　　If Democrats gain control of Congress, it may constrain the administration’s ability to pass legislation expanding the fiscal deficit. This could help ease market concerns about persistently high inflation caused by large fiscal deficits with the economy near full employment, while possibly making US Treasuries more attractive as safe-haven assets and providing support for the US dollar.

　　However, if trade policy comes under pressure, fiscal deficits may rise. Narrowing fiscal deficits may suppress gold prices, while expanding deficits would further support gold.

　　· War Appropriations

　　If the Democrats gain control of Congress, they may reduce war appropriations, which could ease US-Iran tensions, lower energy prices, reduce inflation expectations, and push bond yields and the dollar lower—benefiting gold.

　　Meanwhile, should conflicts ease, the necessity for some central banks and sovereign wealth funds to draw on gold reserves as in March 2026 may diminish. Overall, even if gold’s geopolitical risk premium retreats somewhat, the net effect is still likely positive for gold.

　　· Artificial Intelligence

　　If Democrats gain control of Congress, they may tighten policy support for the AI sector, or introduce stricter regulatory rules. Currently, investors are questioning whether the large-scale investment in AI will deliver the expected returns. Against this backdrop, downward pressure on tech stocks may intensify, and the negative wealth effect may further weaken market confidence and constrain spending.

　　Household balance sheets remain relatively sound and may partially alleviate financial distress, but with high exposure to equities, consumer spending is sensitive to asset value declines. The economic slowdown caused by wealth effects may actually create a more favorable environment for gold, while the pressure on investors to sell liquid assets to raise cash is relatively limited.

　　A weaker stock market, slowing economic growth expectations, falling US Treasury yields, and potential dollar weakness—all of these factors are likely to support gold prices.

　　· Executive and Emergency Powers

　　Increased Congressional constraints may prompt the Trump administration to expand the use of executive orders and emergency powers. The resultant institutional conflicts, legal battles, and decreased policy predictability will raise political and geopolitical risk premiums, thereby supporting gold prices.

　　At the same time, ongoing power struggles between Congress and the executive branch will heighten uncertainties in US foreign policy, increase geopolitical risks, and boost the long-term drive for global reserve diversification through increased gold holdings.

　　Conclusion

　　But what if the Republicans outperform expectations and keep control of both chambers of Congress? Should this occur, we will continue to track and analyze the details and nuances.

　　Overall, we expect that gold investors, especially those outside the US, will continue the trend observed over the past 18 months and keep supporting gold demand.

　　[1] Market analysis shows this phenomenon may be due to gold purchases by Republican-leaning investors, who make up a relatively higher proportion of physical gold bar and coin buyers in the US. See: From Ballots to Bullion (translation: The Impact of US Elections on Gold)

　　[2] Data based on 2016 and 2024. Sources: Bloomberg, World Gold Council

Editor: Zhu Henan