US midterms impact on gold, silver ETFs: Why bullion is rallying after Trump's setback

The Democratic victory in the US midterm elections has led to sharp rallies across asset classes, including gold, equities, and silver ETFs. Gold and silver exchange-traded funds (ETFs) have rallied sharply after the Democratic Party secured control of both chambers of the US Congress, in stunning fashion, dealing a major setback to President Donald Trump.

The results have also led to declines in the US dollar and bond yields, supporting precious metal prices and lifting investor sentiment towards bullion-backed ETFs.

Today, gold and silver ETFs rallied by about 5% in initial trading as domestic bullion prices extended their recovery. As of 3:45 PM, the Multi Commodity Exchange (MCX) December gold futures were in the green, adding ₹1,690 (1.18%) to stand at ₹1,45,460 per 10 grams.

Whereas silver futures advanced ₹1260, i.e., 0.67%, to ₹189,470 per kg. Over the previous two sessions, gold had gained around ₹6,400 per 10 grams, and silver had gained ₹11,231 per kg.

This rally was broad-based across ETFs. Motilal Oswal Gold ETF and Choice Gold ETF gained about 1.5% each in today’s session. Whereas similar performance was recorded by UTI Gold ETF and Invesco India Gold ETF.

Furthermore, for silver funds, 360 ONE Silver ETF rose by 1.31% to ₹183.95. Angel One Silver ETF and Quant Silver ETF also showcased healthy gains, while several other ETFs also rounded off a robust day for ETFs.

Why the election outcome matters

The Democratic control of the US Congress has raised expectations of greater political pressure on the Trump administration. The impact of the results is expected to be felt in the US-Iran war, bringing greater clarity and the possibility of a peace deal as the new cabinet is sworn in January next year. This is because the 1933 amendment to the US Constitution sets January 3 as the date on which lawmakers take the oath of office.

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For now, the fall in crude oil prices in response to the results has eased inflation concerns, resulting in a relief rally in emerging markets; the benchmark Nifty 50 index added more than 570 points today.

This also has the potential to reduce pressure on the Federal Reserve to maintain high interest rates if an amicable resolution is finally reached in the ongoing US-Iran dispute. Given the same expectations, a weaker dollar and lower US Treasury yields could further enhance the appeal of non-yielding precious metals.

Samit Guha, Managing Director and CEO of MMTC-PAMP, explained the broader factors influencing bullion prices, stating, “Gold and silver prices are seeing an upward trend in recent times, supported by safe-haven demand amid global uncertainties. However, prices are not driven by any single factor. They are shaped by a combination of global economic conditions, central bank policies, interest rate expectations, the US dollar, inflation trends, geopolitical developments, and overall investor demand. Movements in global bullion prices also have a bearing on the Indian market.”

He further added, “Our view is that precious metals remain an important avenue for long-term savings and portfolio diversification. Rather than reacting to price movements, we would encourage consumers to keep investing in gold and silver consistently, in line with their financial goals and investment horizon.”

Therefore, for investors, the post-election rally is encouraging; however, it does not guarantee or in any way assure sustained gains in the future. Gold and Silver ETFs remain exposed to global price movements, geopolitical changes, unforeseen developments in ongoing major global disputes, current market fluctuations, and interest rate expectations.

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Keeping these fundamental factors and possibilities in mind, aspiring Investors should avoid chasing sudden rallies and consider their long-term asset allocation before making fresh investments.

Disclaimer: Gold and silver ETF returns are subject to market risks and fluctuations in international bullion prices, currency movements and interest rates. Past performance does not guarantee future returns. Investors should assess their financial goals and risk appetite before investing.