How will the Price of Gold be affected by the Upcoming US Election?

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With the American election looming, the financial markets are expected to enter a significant period of volatility and turbulence. The exact nature of this uncertainty will depend largely on the course that the respective election campaigns take, and whether or not the likely incumbent in the White House is perceived as a good or a bad choice.

This has been the way for years; as various Presidential candidates and their policy projections have impacted on the financial market and its various asset classes. Seemingly safe and secure assets like gold tend to be particularly affected, as traders either flock to or abandon such products as the election continues to unfold.

Then and Now: A Brief History of Elections, the stock Market and Precious Metals

If we look back through time, there are various historical precedents with regards to the performance of the stock market and particular assets after a Presidential election. In fact, every US election staged since 1988 has resulted in an average stock market decline of 0.5% during the first week of the new incumbent’s tenure. From a longer-term perspective, the markets have rebounded more bullishly when a Democratic administration has been at the helm, rather than the controversial and often polarising Republicans.

In recent history, Barack Obama is thought to have had a largely positive impact on the price of gold. This is thanks largely to his steady and consistent Presidency, which has overseen several financial crises’ such as the Great Recession and the fiscal cliff. Certainly his second term in office has seen the price of gold reach a peak of $1.920 an ounce in 2011, before declining by an estimated 40% by the end of 2015. This highlights the economic growth that has flourished in the US over the last four years, which has caused the demand for gold to fall incrementally.

What About the Current Election?

Despite predictions for a prosperous 2016 and suggestions that the price of gold would drop below the £1000 an ounce mark, this precious metal has instead risen by 25% since the beginning of the year. Now priced at around $1,330 an ounce according to ETX Capital, it is expected to rise further as uncertainty surrounding the current Presidential election and the viability of the two candidates grows. At the heart of this is the political posturing of Republican candidate Donald Trump, who continues to polarise opinion and cast doubt over his own suitability for office.

With Hilary Clinton also far from popular with certain demographics, the future of the American economy is hard to forecast. This has triggered the bulk buying of gold as a secure store of wealth, which will empower investors should the economic landscape darken into the New Year. This trend is likely to continue in the immediate aftermath of the result regardless of who is elected, with prices likely to rise further while the new incumbent established themselves and sets a fixed economic course.

In terms of the long-term performance of gold, this depends on the success of the new incumbent and their ability to drive sustainable economic growth.  Make no mistake; however, the election of Donald Trump would most likely cause gold price to rise for longer due to his explosive temperament and lack of experience in political office.