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The U.S. presidential election is a historic trend that affects financial markets, as changes in leadership often require changes in fiscal policy. Gold prices have become more responsive to changes in macroeconomic conditions since President Richard Nixon took steps to end the Bretton Woods system in 1971.
However, looking at the historical impact of US presidential elections, there is little evidence of a linear relationship between the price of gold and outcomes based on partisanship. Precious metals, which struggled under Clinton, hit a record high in the 2011 deal with Obama in the White House. The same goes for Republican candidates, as gold prices weakened during the Reagan era but rose during George W. Bush’s two-term presidency.
Efforts to attribute specific market reactions based on a candidate’s party affiliation are nuanced, especially when external fundamentals such as seasonality and business cycles are taken into account. Since financial markets have bubbled and collapsed during different presidential terms, many different observations can be drawn from different regimes.
However, one observation that applies to the unique circumstances of the current situation is that gold prices have become more volatile in the 21st century, and it remains to be seen whether this trend will continue in the 2020 election due to the economic shock from the COVID-19 pandemic It casts a shadow over the macroeconomic outlook.
Source: Bloomberg data
Tracking gold price action during an election year can help to gain some insight by looking at the average year-to-date movement around the election since 1980. The study mirrored a rebound in the precious metal earlier this year (red line), but peaked in the second half of the year and trended lower in November.
1980 – Ronald Reagan (right)
Source: Bloomberg data
Gold peaked at $850 in January in 1980, when Federal Reserve Chairman Paul Volcker was on track to raise U.S. interest rates to 20% to tame inflation, but the year-to-date gains have been short-lived, with gold It hit its lowest price in March 1980 ($482). Gold rose to over $600 ahead of the Nov. 4 election, but consolidated over time and held around $590 until 1981.
1984 – Ronald Reagan (right)
Source: Bloomberg data
Gold briefly topped $400 in March 1984 when the Fed pushed its benchmark interest rate back above 10%, and Chairman Volcker remained at the helm after being nominated for re-election in 1983. Bullion weakened gradually over the next few months, with the Nov. 6 election doing little to support the precious metal, even though incumbent President Ronald Regan won a second term. Conversely, after the 1984 election, the price of gold continued to fall to a low of the year ($308) in December.
1988 – George Bush (right)
Source: Bloomberg data
In 1988, gold reached its high of the year ($482) in January, but fell below $400 in September as the federal funds rate rose ahead of the November 8 election, with the Federal Reserve led by Alan Greenspan, Nominee by Reagan in 1987. Bush’s victory had little impact on gold prices, which traded sideways for the rest of the year in 1988 to close at around $410.
1992 – Bill Clinton (D)
Source: Bloomberg data
In 1992, bullion held above $350 in March despite the Federal Open Market Committee (FOMC) sticking to its rate-cutting cycle after the recession of the early 1990s, with prices weakening in the first half of the year.
Chairman Greenspan, who was reappointed by Bush in 1991, continued to cut U.S. interest rates ahead of the Nov. 3 election, but gold remained under pressure after Clinton won the presidency, hitting a yearly low just days later ( $332) Die Val. Gold traded in a tight range for the rest of the year, with 1992 bullion finishing around $335.
1996 – Bill Clinton (D)
Source: Bloomberg data
Gold surged above $400 in the first quarter in 1996 as the Federal Open Market Committee (FOMC) left U.S. interest rates unchanged, while Chairman Greenspan remained at the helm after being re-elected to a third term by Clinton earlier this year.
Yet despite Clinton winning a second term, gold remained below $400 for the rest of the year, recovering quickly after the Nov. 5 election, closing around $368 in 1996.
2000 – George W. Bush (right)
Source: Bloomberg data
Gold prices rose in early 2000, with the precious metal trading above $300 in February, even as the FOMC continued its 1999 rate hike cycle.
However, despite the last rate hike by the FOMC in May, bullion prices fell in the coming quarters in the days after the Nov. 7 election, with the precious metal hitting a one-year low ($264). Gold prices rose later that year, reaching around $272 by the end of 2000, as Federal Reserve Chairman Alan Greenspan, who was in his fourth term after being re-elected by Clinton, kept U.S. interest rates unchanged.
2004 – George W. Bush (right)
Source: Bloomberg data
Gold hit as high as $426 in the first quarter of 2004 when the Federal Reserve kept U.S. interest rates at 1.00%, but was caught in Greenspan by George W. interest rates in the second half. Gold prices rose after Bush won a second term, hitting a year high ($456) in December.
2008 – Barack Obama (D)
Source: Bloomberg data
November 4, 2008
Gold briefly soared above $1,000 in March 2008 when the FOMC cut U.S. interest rates in response to the subprime mortgage crisis, but fell to $721 before the Nov. The central bank cut interest rates twice in October alone. Gold hit its low for the year ($712) just days after Obama won the election and bullion rallied as the year progressed to close 2008 around $882.
2012 – Barack Obama (D)
Source: Bloomberg data
November 6, 2012
Gold prices started 2012 just above $1,600, rising to $1,781 in February, before hitting a low for the year at $1,540 in May, despite the FOMC keeping U.S. interest rates near zero. Gold prices rallied ahead of the Nov. 6 election to break $1,700 again, but the rally faded despite Obama winning a second term as the precious metal ended the year around $1,675.
2016 – Donald Trump (R)
Source: Bloomberg data
November 8, 2016
In 2016, the year the Janet Yellen-led Federal Open Market Committee (FOMC) raised U.S. interest rates in late 2015, gold prices started below $1,100, but as the central bank kept the federal funds rate at 0.25 In the % to 0.50% range, July traded as low as $1366. Gold, however, dipped below $1300 ahead of the Nov. 4 election, and Donald Trump’s victory provided little support for gold as it closed the year. around $1148.
2020 – ?
Various fundamental factors can be traced back to changes in the price of gold since the collapse of Bretton Woods, but looking at the U.S. presidential election timeline, there is little evidence of a linear relationship between gold prices Affiliation, although precious metals are more sensitive to the macroeconomic environment.
With that in mind, the study shows that gold prices have become more volatile in the 21st century, and with the precious metal hitting record highs this year, it remains to be seen whether this trend will continue beyond the 2020 election.
— Written by Currency Strategist David Song
Follow me on Twitter at @DavidJSong
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