The 2026 US midterm elections. Positioned in the middle year of the presidential term, these political trends bring significant volatility and opportunities to financial markets, particularly to the precious metals (commodity) markets such as ‘gold’ and ‘silver’.
‘What happens to precious metals if the Democratic administration is maintained or remains dominant?’ ‘If a divided government occurs, is it positive or negative for precious metal prices?’
In this article, we will set aside mere political agitation and coldly analyze the future of precious metal prices based on three axes: past midterm election data, the structural expansion of the fiscal deficit, and the monetary policy of the US Federal Reserve (FRB).
1. The affinity between ‘fiscal expansion’ under a Democratic administration and precious metals (gold and silver)
Generally, economic policy under a Democratic administration is characterized by ‘large-scale fiscal spending (clean energy investment, social security, and infrastructure investment).’.
This fiscal structure creates the following powerful fundamentals (upward factors) in the precious metals market.
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Expansion of the US ‘fiscal deficit’ and declining confidence in the US dollar Increased issuance of government bonds to fund large-scale fiscal spending creates concerns about the dilution of the US dollar in the medium to long term. ‘Gold,’ a stateless safe-haven asset, becomes easier to buy as a direct risk hedge against the declining value of the US dollar.
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Explosion of ‘real demand’ due to Green New Deal policies (silver and platinum) The decarbonization and clean energy policies advocated by the Democrats (solar panels, EVs, hydrogen infrastructure, etc.) directly boost industrial demand for ‘silver’ and ‘platinum,’ which are also industrial metals.
2. Market impact when a ‘Divided Government’ occurs
The scenario that is most likely in the midterm elections and that the market is watching closely is that ‘the president’s party (Democrats) and the majority of the House or Senate are divided (Republicans recapture control).’.
Historically, when a ‘divided government’ occurs, the following non-linear movements are seen in precious metal prices.
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Short-term impact: Increased volatility due to policy stagnation (gridlock) Stagnation in administration management, such as difficulties in passing budgets and the re-emergence of the debt ceiling issue, triggers short-term market anxiety (risk-off). As a result, buying back gold as a safe-haven asset becomes dominant in the initial phase.
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Medium- to long-term impact: Strengthening of the FRB’s incentive for interest rate cuts (monetary easing) When fiscal policy becomes deadlocked due to a divided government, the main driver supporting the economy must shift from ‘fiscal policy’ to ‘FRB monetary policy (interest rate cuts).’ A decline in real interest rates becomes an excellent upward trigger (favorable wind) for precious metals, which do not generate interest.
3. Scenarios after the midterm elections
■ Gold
・Main fluctuation factors: Fiscal deficit expansion, US dollar credit concerns, purchases by central banks of various countries
・Assumed scenario: Rise (firm)
・Explanation: Fiscal deficit expansion and a divided government under a Democratic administration strengthen ‘concerns about the dilution of the US dollar.’ In addition to safe-haven demand, purchases by emerging market central banks that are moving away from the dollar provide strong support for the floor price.
■ Silver
・Main fluctuation factors: Decarbonization/clean policies, depletion of above-ground stocks, following gold prices
・Assumed scenario: Bullish (high volatility)
・Explanation: Clean energy and decarbonization policies promoted by the Democrats (solar, EV, charging infrastructure) directly boost industrial demand. In phases where it follows the rise in gold with a delay, a scenario of a significant rise accompanied by a correction in the gold-silver ratio emerges, demonstrating high beta.
■ Platinum/Palladium (PGM)
・Main fluctuation factors: Strengthening of environmental regulations, hydrogen energy demand, supply disruption risks
・Assumed scenario: Neutral to bullish
・Explanation: While strict environmental regulations suppress demand for internal combustion engine catalysts, investment in the ‘hydrogen ecosystem (water electrolysis, fuel cells)’ supported by the Democrats creates new structural demand. The fact that it is at a historically undervalued level relative to gold is also noteworthy.
[Notable Data] Precious metal anomalies after midterm elections
Looking back at past market data (anomalies), after the US midterm elections pass, due to the clearing of political uncertainty and expectations for economic measures toward the following year’s presidential election,a tendency for funds to flow into the commodity market in general is observed.
In particular, in phases where ‘a decline in real interest rates (weaker dollar)’ and ‘a recovery in industrial demand’ overlap, a development where the beta value (price volatility) of ‘silver,’ which has been left undervalued relative to gold, increases has been observed many times in the past.
4. The cold-headed stance investors should take
There is no need to be swayed by the administration’s political leanings or midterm election headlines.
The essence to look at is always simple.
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Will the US fiscal deficit decrease or increase?(👉 Structurally increasing)
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Where is the Fed’s real interest rate heading?(👉 Rate cuts and convergence toward the neutral rate)
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Is the supply of industrial physical metals (such as silver) sufficient?(👉 Chronic shortage)
The ‘dilution of fiat currency (paper money)’ and the ‘value of physical tangible assets’ are progressing behind the scenes of political performance. Let us grasp the turning point of the midterm elections and calmly assess the distortions in our portfolios.
PR
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