The U.S. mid-term elections ended with the Republicans taking control over the House. Silver prices feel… ambivalent.
The Republicans have taken control of the House of Representatives. It’s a great loss for the liberals and a huge success for the conservatives. However, the Republicans’ performance was much worse than expected. The forecasted red wave didn’t materialize, and the Democrats maintained control of the Senate (they lead 50 seats to 49, and even if the Republicans win the remaining race in Georgia, Vice-President Kamala Harris will be able to cast a tie-breaking vote). What’s important, the Trump-backed candidates’ results missed expectations, which indicates a fading popularity of the Trump-like agenda. It implies declining odds of Trump winning the next presidential race.
Nevertheless, the results will allow the Republicans to probe Biden and his family (in particular his son Hunter’s businesses). They also imply that Biden’s legislative agenda is practically dead. It’s also possible that the Republicans will try to cut American support for Ukraine.
Implications for Gold
What does it all mean for the silver market? Well, the fundamental impact of the elections on the silver outlook seems to be indeterminate . On the one hand, with Republicans controlling the House, President Biden won’t be able to continue his lavish spending. The normalization of fiscal policy could be negative for silver prices.
However, if it weakens consumer inflation and the Fed’s tightening cycle , it could actually be positive for silver. What’s more, as we’ll have again (like during Obama’s presidency) a Democrat president and a Republican House, we could see political deadlocks, temporary government shutdowns, and also some international chaos if the Republicans try to reduce America’s support for Ukraine. An increased political turmoil could support silver prices. Recently, silver rallied , as the chart below shows, but it was more related to the flattening of the expected interest rates path.
The rally could gain even more traction when the Fed ends its tightening cycle . It can happen in the upcoming months; later in 2023, we could even see cuts in the interest rates. Hence, the silver price forecast for 2023 is better than for the current year. Having said that, silver could decline somewhat after the recent rally, especially given the latest hawkish commentaries from the Fed officials.
Arkadiusz Sieron, PhD