Trump and Gold3

In previous articles, we have examined the gold’s performance in different election cycle years. Now, we deepen our analysis and investigate the behavior of the shiny metal in each presidential cycle in more detail. We analyze how gold performed under each President and which governing party (or whether the new President is an incumbent or a newcomer) affects the gold market the most.

The first cycle ran from 1973 to 1976, when Richard Nixon (who in 1971 closed a gold window), and later, after the Watergate scandal, Gerald Ford were in office. As the gold standard was abandoned, while inflation and uncertainty surged, it was a good period for the shiny metal, which rallied 114.27 percent.

The next presidential term was even better for gold, which skyrocketed 392.50 percent under Jimmy Carter in 1977-1980 due to the rampant inflation and weak greenback. Carter was definitely the best president for the price of gold. However, gold’s move in the post-election year was much stronger after Nixon’s nomination, and the annual returns gradually deteriorated over the term, while the dynamics after Carter’s nomination was the opposite (weak reaction and improving returns over the term).

The Ronald Reagan’s era was not positive for gold, as the improving domestic economy pushed the shiny metal down 41.29 percent during his first term and only 21.09 up during the second term. In both cycles, the post-election year was the worst for gold. The same applied to George H. W. Bush’s presidency. The first year after the nomination was the weakest for the yellow metal, which lost 21.27 percent overall during the term.

After George H. W. Bush, Democratic Bill Clinton took the office for two terms, but gold remained in a bear market. It gained only 12.77 percent during the first four years and lost 28.04 percent over Clinton’s second term, as the U.S. dollar was strong. It is notable that the post-election year in the first election won by Clinton was the second-best for the shiny metal in that cycle.

The George W. Bush’s presidency was definitely supportive for gold, which surged 46.60 percent over the first term and 113.11 percent over the second due to rising fiscal deficits. However, the post-election years were the weakest in both election cycles.

The first term of Barack Obama continued to be positive for the yellow metal, which rallied 91.40 percent due to worries about the post-recession economy. In that cycle, the post-election year was not the worst, but the second worst. During Obama’s second term, gold plunged 26.82 percent. The table below summarizes gold’s behavior in each presidential election cycle.

Table 1: Gold’s performance in presidential election cycles between 1973 and 2016

Gold’s performance in presidential election cycles between 1973 and 2016

What are the conclusions for our analysis of gold’s behavior during the post-1971 presidential election cycles? First, including the first half of 2016, there were eleven presidential election cycles since the 1970s when gold started to be freely traded. Gold increased during seven of them and usually (in eight cases) experienced the worst performance over the cycle in the post-election year.

Second, there were six Republican presidential terms and five Democratic. The latter were far better for gold, as it gained, on average, 88.36 percent over Democratic presidencies and only 38.75 percent over Republican presidencies. Although it makes some sense, as Republican governments are a bit more focused on curbing inflation and fiscal deficits, the process was very sensitive to Carter’s presidency under which gold skyrocketed.

Third, when a newcomer became the president gold behaved much better (100.40 percent) than in case of incumbents’ victories (28.72 percent) in the whole cycle, but worse in the post-election year (1.28 percent versus 3.47 percent, respectively). But when we separate Republicans and Democrats, we see different outcomes. Gold performed stronger under Republican incumbents than under Republican newcomers or Democrat incumbents, both in the whole election cycle and in the post-election year. Again, due to Carter’s presidency, Democrat newcomers were, after Republican incumbents, the best for gold in the post-election years. Fourth, gold gained more over cycles when presidents had support in Congress (184.07 percent versus 19.43 than when the Congress was dominated by the second party). However, we doubt whether it was an important factor in the gold price dynamics. The analysis is based on very little data and it is not easy, as sometimes presidents had support for half of their presidency or support of the House of Representatives or Senate, only).

Bottom line

The long-term analysis of gold’s behavior in presidential election cycles is inconclusive. Gold marked its best time under Carter’s presidency, but otherwise it went up and down under both Republicans and Democrats, incumbents or newcomers. It seems that the gold’s performance depends much more on the broader economic context, including monetary policy, rather than who leads the government. It shined when the U.S. economy was in stagflation both under Nixon/Ford and Carter. And the yellow metal was weak when the U.S. economy strengthened, no matter whether it was under the Republican Reagan or the Democrat Clinton. It suggests that the choice between Donald Trump and Hillary Clinton may be not as important for the gold market as is commonly believed. Certainly, Trump would be an unprecedented president due to his unpredictability and populism, thus gold may get a boost if he wins. However, investors should remember that the post-election year is usually the weakest year in the presidential election cycle.