With investors closely watching the presidential race in the world’s largest economy, the growing uncertainty has raised questions about its impact on assets such as gold.

Gold prices have held in recent weeks above US$2,500, reaching a new high of US$2,521 on August 20.

As of August 29, gold was trading at around $2,516.

While elections historically have not had a significant or immediate effect on gold's performance, interesting trends emerge when it affects the past.

According to an analysis by the World Gold Council (WGC), gold appears to be doing slightly better in the six months leading up to the election of a Republican president and is flat in the post-election period.

Conversely, it tends to underperform before a Democratic president is elected, and it performs slightly below its long-term average in the six months after the election.

However, the WGC reiterated that these results are nuanced.

"There are few observations for each of the cases analyzed and there is considerable variability in the results," it said, suggesting instead that gold likely responds to specific policies rather than the party affiliation of the president-elect.

"This is also evidenced by the fact that gold has not consistently outperformed during the full term of a president from one party to another," it said.

Looking more specifically at gold's observed behavior under the previous Trump administration and the current Biden presidency, the WGC analysis found that prices rose 60 percent during Trump's tenure.

Namely, prices rose nearly 30 percent before COVID and just over 30 percent during the pandemic.

As for Biden, the situation is slightly different because he is not seeking re-election, but his policies may continue under a new Democratic administration. The WGC found that gold moved sideways initially under Biden and has since gained more than 30 percent during his tenure so far.

These gains were mainly due to broader macro factors and central bank purchases.

Also worth noting, the WGC said, is the fact that gold's returns have declined in the six months since both Trump and Biden took office, falling 2.6 percent and 6.4 percent, respectively.

Growing geopolitical risk

Given the direct link between geopolitical risk and gold, WGC's analysis examines whether the US election could be considered a geopolitical risk for commodity investors.

It is noted that historically, movements in geopolitical risks around the past US election have not been a major direct driver of gold prices.

"Instead, we believe that this form of risk occurs indirectly and is subject to time lags based on the market effect of the policies—both foreign and domestic—that an administration implements throughout its tenure," it said.

Even so, geopolitical risks remain high, he admits, with little chance of a significant decline in the near future.

"For example, if Trump is elected, he will likely face a more polarized world than during his previous term. As such, global markets may be more reactive to the direction of his policies – especially foreign ones,” it said.

Similarly, in terms of the geopolitical risk indicator, risk levels were significantly lower at the start of Biden's presidency than where they are today, the WGC notes, with risk only expected to rise by November .

"And a Democratic presidency with policies similar to Biden's could face a divided Congress and difficulty passing legislation," it said.

All this highlights the need for robust hedges in portfolios regardless of the US outcome, the WGC said.

“Previous elections have not created an immediate impact on geopolitical risk; rather, they have contributed positively or negatively to the broader risk environment with a lag as administrations enact policies. And while gold has not on average reacted to past election results, this election may have a more pronounced effect on investor sentiment,” it said.

Looking ahead, it signals further volatility as election-related uncertainty and geopolitical threats continue.

This, in turn, "could prompt investors to assess how they might de-risk their own portfolios and steer them towards a safe-haven asset such as gold," it said.