The mere prospect of a Democratic president is driving some ultra-wealthy investors to amass significant portions of gold. Here’s what has them so concerned.
In a recent note to clients, Goldman Sachs’ analysts went over the different reasons why gold is primed to breach the $1,600 level in 2020. Though unusual, the flock of the ultra-wealthy towards gold bullion could be a particularly powerful driver that helps the metal climb to these levels.
The analysts pointed out that 2020 will be marked by an election with a high degree of uncertainty, which in itself should be supportive of gold prices. However, Goldman singled out certain policies of Democratic candidates that may have already driven the wealthy to view gold as a safe harbor.
With recent discussions about income inequality, Senators Bernie Sanders and Elizabeth Warren have each vowed to impose a tax on the rich in order to combat the issue. Sanders proposed a plan for a levy that ranges from 1% on married couples with a net worth of over $32 million to 8% on those worth over $8 billion. Warren echoed similar policy plans in her speeches, vowing to impose a 2% tax on those worth over $50 million and a 6% tax on individuals with a net worth of over $1 billion.
Although these ideas remain drafted, Goldman’s analysts believe that the potential targets of these new taxes have already begun stockpiling gold as a means of fighting back against the levies. Of course, the proposed policies are only one reason why ultra-wealthy individuals have started pouring into gold, as Goldman’s team notes that high-net-worth investors are turning to gold due to a surge in possible risky economic and political scenarios.
As Goldman explained, these individuals are choosing vault-stored bullion over other gold investment options as they believe introducing another financial entity into the mix adds yet another source of risk. It’s not just the threat of taxes that is turning the ultra-wealthy towards gold, as worries over a global growth slowdown and a protracted U.S.-China trade war, coupled with a tumultuous political situation, have made investors skittish across the board.
In a November survey, UBS Wealth spoke to 3,400 high-net-worth individuals in regards to their outlook on the market. More than half of the surveyed participants said they expect a major market sell-off before the end of 2020. Furthermore, 79% of participants predicted an increase in volatility next year, while 72% called the investment environment “more challenging” compared to five years ago. Interestingly enough, this data ties to a New Yorker article from 2017 which outlined how some of the wealthiest people in America seem to be preparing for a doomsday event by hoarding items that would be valuable in a catastrophe scenario, which include gold coins.
Besides these factors, Goldman added that the general climate of uncertainty should continue to support gold throughout 2020. Besides forecasting a price of $1,600 by the end of next year, Goldman said that GDP growth in emerging markets could result in a 4.6% annual increase in gold prices in the coming years.