Precious metals held firm and base metals rose upon the apparent victories of two Democrats in races for the U.S. Senate in Georgia, while the enactment of larger stimulus measures and looser fiscal policies became marginally more likely.

Democrats Raphael Warnock and Jon Ossoff defeated Republican Sens. Kelly Loeffler and David Perdue, respectively, in the Jan. 5 runoff elections in Georgia. Along with President-elect Joe Biden's election success, the wins will give Democrats unified control of the White House and the U.S. Congress for the first time since 2010.

However, the margins in either chamber will be slim, potentially limiting what a Biden administration can accomplish in Congress. In the Senate, there will be a 50-50 caucus split, with Democrats and Democratic-allied independents holding 50 seats and Vice President-elect Kamala Harris serving as the tie-breaking vote. In the House, Democrats have a majority of four seats.

The London Bullion Market Association gold price did not lose steam on expectations of potential gridlock in government in the weeks after the November elections. However, the gold price climbed from $1,862 per ounce to $1,947/oz between Dec. 16, 2020, and Jan. 5. The price had dipped to $1,902/oz as of Jan. 6, failing to return to the lows seen in late December 2020.

Metals that would be key to infrastructure stimulus or a green energy legislative package also gained. The London Metal Exchange Copper Grade A cash price made a similar climb as compared to gold, rising from $7,814/t on Dec. 16, 2020, to a high of $8,030/t on Jan. 6. Meanwhile, LME lead and nickel cash prices Jan. 6 retained a recovery of losses incurred in late December 2020 when it was unclear if Democrats would have the leverage to execute larger stimulus measures.

An evenly split Senate does not mean Democrats will be able to freely pass legislation, because there is a 60-vote threshold for surpassing a filibuster, Credit Suisse analyst Fahad Tariq said in a Jan. 5 note. But victories in both Senate runoffs "certainly would be an easier path to approving more fiscal stimulus," a point of fact investors did not have after the November 2020 elections when control was unclear, according to Tariq.

"Typically the result of U.S. elections has only a transient impact on gold. That said, we mentioned a clean sweep by Democrats would be positive for gold because it would mean additional and more significant fiscal stimulus," Tariq wrote.

Credit Suisse predicted gold will average $2,100/oz in 2021, compared to an average of roughly $1,950/oz in the current spot market atop accommodating monetary policies, such as low U.S. interest rates, as well as higher inflation and a weaker U.S. dollar. The economic recovery from the pandemic "will be gradual at best, meaning a low rate environment and an elevated gold price environment are here to stay at least for the next few years," Tariq said.

Democratic victories in the Senate races should benefit gold because of the potential for a "potentially more progressive and greater spending agenda," HSBC analyst James Steel said in a Jan. 4 note. But such a trend could result in an "equity market correction should investors worry that such a political check won't exist."

"In turn this could precipitate risk-off behavior in the [foreign exchange] markets, potentially lending the USD some safe-haven strength. This would act against gold and silver, despite the broader move to risk-off assets," Steel said.

Prolonged protests of the U.S. presidential election results could also benefit gold as uncertainty has historically been good for the yellow metal. "Fissures within the Republican party could be relevant for the political climate moving forward and aid gold," Steel said.

The results of the runoff elections "should favor industrials and materials while higher inflation and a steeper yield curve puts a bid on the banks," Jefferies Equity Research said in a Jan. 6 note. Copper and the materials sector are expected to be a "big winner" for a Democratic-controlled Congress, and the industrials sector "perfectly bridges the infrastructure and domestic spending themes" of the incoming Biden administration, according to the Jefferies analysts.

In addition, the results should not be taken as an indicator of radical changes toward the left. "A slim majority keeps longer-term issues at bay with much of the 'further left' agenda defeated down in ballot races in November," the research firm said.