When we think of factors that affect gold prices, the first items that come to mind are typically inflation levels, geopolitical concerns, central bank reserves, production levels, and interest rates. As with many other commodities, though, gold prices are greatly influenced by presidential elections. With another election coming next year, let’s look at how gold prices may move.
The U.S. Money Reserve recently conducted a data analysis to review how precious metals perform in light of U.S. presidential elections. Over the past few decades, the data showed that gold tends to perform better following Democratic victories compared to Republican victories.
When looking at gold prices following each election since 1980, gold increased by 0.5% on average during the two-week period following Democratic victories. In comparison, gold prices typically dip by 1.1% during the two-week period following Republican victories in the same analyzed time period.
The impact that elections have on gold prices increases as time goes on. Between election day and inauguration day, Democratic presidential win years are correlated with gold price increases of 1.5%, whereas Republican wins brought gold prices down by a whopping 5.5% on average during the same time span each election year.
“This effect may be attributable to gold buyers associating fiscal conservatism of Republican presidents with lower rates of inflation and a stronger dollar. On the other hand, progressive fiscal policies that favor increased government spending may be perceived by gold buyers to produce higher rates of inflation,” Brad Chastain, the U.S. Money Reserve director of education, explained.
Essentially, a liberal victory could equate to higher inflation rates, which increase gold demand, offering better performance rates and increased investment opportunities. On the other hand, a Republican victory may equate to lower inflation levels and reduced gold performance rates, as other commodities, like stocks and bonds, steal the attention of investors.
Traders weigh their investment decisions based on the current economic environment. Many choose to invest in gold as a safe-haven asset because of its ability to store value during periods of economic turmoil. Because of this, gold demand often rises when economic instability and inflation run high.
For example, the economy in the 1970s experienced severe turmoil with high inflation rates, perfectly corresponding with high spot gold prices. Between 1978 and 1980, gold increased from $176 per ounce to $653 per ounce in just two years, reflecting a 271% increase. The same occurred during the Great Recession and mortgage crisis between October 2008 and August 2011, when gold prices climbed by 119%.
In a more recent example, the fears of an upcoming recession before the COVID-19 pandemic led to a 66% gold price increase between 2018 and 2020. Fast forward to 2023, and gold has already skyrocketed by over 14% in the last 12 months amid 40-year-high inflation levels, rising geopolitical tensions, strong central bank purchases, and soaring economic uncertainty, all led by a liberal U.S. president. While next year’s election may not directly dictate gold’s future, it will likely impact short-term performance rates as traders look to the results to make their investment decisions.
So, how do analysts think next year’s election will go?
Democrats succeeded in the elections on Tuesday, November 7, but whether or not leftist President Biden remains in the White House after the 2024 Presidential Election is largely up for debate. Based on the 2024 Presidential Election Interactive Map, Democrats have currently received 241 electoral votes, while Republicans have 235.
“Right now, it’s looking like another Biden versus Trump standoff…,” Madison Faller and Shawn Snyder, Global Investment Strategists at J.P Morgan, explained. “Polling aside, we’d note that history is usually on the side of the incumbent when it comes to the actual election. Since 1912, incumbents (here, President Biden) have won roughly three times out of four – except when there’s a recession within two years prior to an election day. As we know, the 2020 election fit that bill.”
Election aside, analysts expect gold to perform well in 2024, regardless of how the politics play out. With the rising conflicts in the Middle East increasing safe-haven demand, gold will likely continue to enjoy increased pricing support.
“While a stubbornly strong dollar would typically keep a lid on gold prices, a clear reason for the surge of interest in the precious metal stands out: unrest in the Middle East. War breaking out between Israel and Hamas earlier this month provided a notable upside catalyst for the gold price rally,” Investor’s Business Daily explained.
As always, investors should consult their advisors before making any portfolio decisions.