2012-11-08 08:32:51Roosevelt

Gold Regains $1700 on Election Day

Gold rebounded sharply in the midst of Tuesday's US elections, retracing all of last Friday's post jobs report losses and then some. It was widely perceived that the re-election of President Obama would be good for gold, so maybe investors in the yellow metal were the first to concede that even though the popular vote was pretty evenly split, the realities of the Electoral College simply did not bode well for Mr. Romney.
However, as Mike Kosares wrote before the election, "the history of post-election years since 1971 suggests that the gold market is decidedly indifferent, or apolitical, if you will, about the outcome of presidential elections." Since Richard Nixon ended convertibility between the dollar and gold in August of 1971, there have been eleven Presidential elections. Here is how gold performed in the years immediately following those elections:

1973 after Republican victory: +73%.

1977 after Democrat victory: +21%.

1981 after Republican victory: -32%.

1985 after Republican victory: +7%.

1989 after Republican victory: -3%.

1993 after Democrat victory: +20%.

1997 after Democrat victory: -21%.

2001 after Republican victory: 0%.

2005 after Republican victory: +20%.

2009 after Democrat victory: +24%.

2013 after Democrat victory: ??

To summarize: The six “up” years, were evenly split; three when Republicans won the White House and three when the Democrats triumphed. Of the three “down” years, two occurred following a Republican victory and one when the Democrats won. There was one year the price of gold was essentially unchanged after a Republican victory and then of course it remains to be seen what the price of gold will do in 2013, now that Barack Obama has been re-elected.

Now the market's attention turns to weighty matters such as the 'fiscal cliff' and an impending battle over yet another debt ceiling hike. The Fed will maintain their super-easy policy stance, and may still heap additional accommodations on top of the already unprecedented measures, as the U.S. economy continues to sputter. The eurozone remains a mess with the Greeks voting on further austerity measures later this evening. Central bank gold demand, mainly for the purposes of reserve diversification is expected to remain robust, even amid rising supply concerns.

Gold extended gains in overseas trading today, establishing a new three-week high at 1731.38. Despite a subsequent intraday pullback, the yellow metal is maintaining gains above $1700, even though the dollar index snapped back to set new nine-week highs. The rise in the dollar is more a function of renewed euro weakness, yet traders continue to pay attention to the recent inverse correlation between the dollar and gold.

Our clients however are not traders. They buy gold as wealth preservation, portfolio diversification and for hedging purposes. They don't make their buying decisions based on who sits in the oval office, but rather based on the aforementioned reasons, like the 'fiscal cliff' and the ever-rising debt ceiling.