One of the supporters of a leading presidential candidate stated on a recent Sunday talk show, “You’ve got to understand, a lot of posturing takes place in an election year that isn’t supposed to be taken at face value.” While this might be a surprisingly frank and truthful admission, it is also a reality that such “posturing” can and does impact the financial markets and trader activity. So what can we learn about investing in gold during an election year? According to some analysis and a glance at historical trends, it may be a really good time.
Learning from Past Elections
For those buying gold and other precious metals, it is a constant challenge to discern what such comments as stated above may or may not mean. This is especially the case when the supposedly apolitical Federal Reserve’s FOMC seeks to keep things positive in a presidential election year.
These factors underlie the reason many analysts expect a bumpy ride during election years, but also make it a popular time to buy gold. 1 Actually, studies of the past few elections show an increase in prices as election year approaches, then a slow decline in gold prices in the months immediately preceding the election, and finally a sizeable bump upwards after the election is over.
This process presents a classic situation for buying low and lowering overall portfolio costs or for taking profits with short-term gold buyers. Regardless of the strategy, the predictability is coming into play this year, marked by the strong start to 2016, the recent slight faltering, and the predictions for a stronger market next year.
Sorting Out the Trends
Of course, the complexities of the market make such trends subject to changes, especially with the many negative world economic factors currently in play. Additionally, demand for the yellow metal continues to exceed production, with increasing upward pressure exerted by numerous central bank purchases. 2
Nonetheless, there is an increasing consensus that rather than being alarmed over any small pullback from this year’s strong performance, such declines should serve as buying opportunities. With the extraordinary circumstances surrounding this specific election, there is more speculation than is normal about what different potential outcomes will mean to the economy and both fiscal and monetary policies in the United States.
Especially if you look at global trends, any potential dip will present excellent opportunities to add to current positions for long-term buyers of gold.
2 – https://www.gold.org/supply-and-demand/gold-demand-trends