The US Presidential election holds a unique power to impact financial markets due to its potential to usher in new leadership and thereby bring about shifts in fiscal policies. Consequently, the price of gold has exhibited heightened sensitivity to changes in the macroeconomic landscape, particularly after President Richard Nixon implemented measures to terminate the Bretton-Woods system beginning in 1971.
However, scrutinizing the historical impact of the US Presidential election reveals scanty proof of a direct connection between the price of gold and the outcome based on party affiliation. Bullion struggled during Clinton's tenure, whereas the precious metal reached a record high price in 2011 under Obama's administration. Similar disparities occurred with Republican candidates, as gold prices weakened during the Reagan era but increased during George W. Bush's two terms.
Attributing a specific market reaction to a candidate's party affiliation is a nuanced practice, particularly when considering external fundamental factors like seasonality and the economic cycle. Various presidencies have witnessed financial market bubbles and crashes, leading to contrasting observations.
Nonetheless, one observation applicable to the unique present conditions is that gold prices have become more volatile in the 21st century. It remains to be seen if this trend will persist for the 2020 election, given the economic shock from the COVID-19 pandemic, which clouds the macroeconomic outlook.
Monitoring the gold price movement during election years might offer insights by examining the average trends in the year before and after elections since 1980. The analysis shows the precious metal (represented by the red line) surging at the beginning of the year but reaching a pinnacle in the latter part, subsequently declining in November.
1980 - Ronald Regan (R)
In 1980, the value of gold surged to reach a peak of $850 in January, propelled by the Federal Reserve, led by Chairman Paul Volcker, striving to raise US interest rates significantly, aiming to suppress inflation. However, the uptrend was fleeting, and by March, the precious metal bottomed out at $482. Subsequently, bullion rebounded, surpassing $600 before the November 4 election. Nevertheless, it stabilized for the rest of the year, hovering around $590, poised for the approaching 1981.
1984 - Ronald Regan (R)
In 1984, gold prices momentarily surged beyond $400 in March as the Federal Reserve elevated the benchmark interest rate back above 10%, with Chairman Volcker still at the helm after receiving a nomination for a second term in 1983. Bullion gradually declined over the ensuing months, and the November 6 election had negligible impact on bolstering the precious metal, despite incumbent Ronald Reagan securing re-election. Consequently, the price of gold continued to slide downward after the 1984 election, reaching the annual nadir ($308) in December.
1988 - George Rush (R)
In 1988, the value of gold reached its peak ($482) during January, but later declined below $400 in September due to the rise in the effective Federal Funds rate before the November 8 election. The US central bank, headed by Alan Greenspan (nominated by Regan in 1987), was responsible for this increase. Despite Bush's victory, gold prices remained relatively unchanged, and bullion traded sideways for the rest of the year, concluding 1988 at approximately $410.
1992 - Bill Clinton (D)
In 1992, the price of bullion hovered above $350 until March, gradually weakening in the first half of the year, despite the Federal Open Market Committee (FOMC) persisting with its rate easing cycle following the early 1990's recession.
Chairman Greenspan continued to reduce US interest rates before the November 3 election, following his reappointment by Bush in 1991. However, the value of gold remained under pressure after Clinton won the presidency, with the precious metal hitting its yearly low ($332) shortly after the election. Gold then traded within a narrow range for the rest of the year, ultimately finishing 1992 around $335.
1996 - Bill Clinton (D)
In 1996, the value of gold surged beyond $400 in the initial quarter due to the Federal Open Market Committee (FOMC) decision to maintain unchanged US interest rates, with Chairman Greenspan continuing his leadership after being reappointed for a third term earlier that year by Clinton.
Nevertheless, the gold price remained under $400 for the rest of the year, despite Clinton's re-election to a second term. Shortly after the November 5 election, the gold's rebound receded, and it concluded 1996 at approximately $368.
2000 - George W. Bush (R)
In the year 2000, the price of gold initially recovered, despite the FOMC's ongoing rate hiking cycle that started in 1999. The precious metal traded above $300 in February but faced a decline in the following quarters. The FOMC's last rate hike was implemented in May, and shortly after the November 7 election, gold marked its yearly low at $264.
Nevertheless, gold prices gradually increased for the rest of the year, reaching around $272 by the end of 2000. This was influenced by Fed Chairman Greenspan, who was in his fourth term after being reappointed by Clinton. Greenspan's decision to keep US interest rates unchanged played a role in the precious metal's upward movement.
2004 - George W. Bush (R)
In 2004, the value of gold reached a peak of $426 in the initial quarter due to the Federal Reserve's decision to maintain US interest rates at 1.00%. However, the price dipped below $400 multiple times before the November 2 election as Chairman Greenspan, serving an unparalleled fifth term after reappointment by George W. Bush, initiated rate hikes in the latter part of the year. Following Bush's re-election, gold prices surged, with bullion hitting the annual high of $456 in December.
2008 - Barack Obama (D)
November 4, 2008
In 2008, the value of gold temporarily surged above $1000 in March when the FOMC decreased US interest rates due to the sub-prime housing crisis, but dropped to as low as $721 before the November 4 election despite the central bank, led by Chairman Bernanke, implementing two distinct rate cuts in October. Gold reached its lowest point of the year ($712) shortly after Obama's victory in the election, but subsequently rebounded during the rest of the year to conclude 2008 around $882.
2012 - Barack Obama (D)
November 6, 2012
In 2012, the gold market commenced the year slightly above $1600 and surged to a peak of $1781 in February. Nevertheless, it concluded the year with a yearly low of $1540 in May, despite the FOMC maintaining US interest rates close to zero. Prior to the November 6 election, gold prices recuperated and surpassed $1700, but the resurgence faltered, notwithstanding Obama securing a second term, as the precious metal closed the year at approximately $1675.
2016 - Donald Trump (R)
November 8, 2016
In 2016, the value of gold commenced the year under $1100 as the Federal Open Market Committee (FOMC), under the guidance of Chair Janet Yellen, raised US interest rates towards the end of 2015. Subsequently, gold prices surged to as high as $1366 in July, coinciding with the central bank's decision to maintain the Federal Funds rate within the range of 0.25% to 0.50%. Nevertheless, gold prices dipped below $1300 prior to the November 4 election. Following the victory of Donald Trump, the precious metal failed to find support, and bullion concluded the year at approximately $1148.
2020 -?
After the breakdown of the Bretton-Woods system, several underlying elements can be linked to fluctuations in gold prices. However, examining the chronology of US Presidential elections reveals scant proof of a direct correlation between bullion and party affiliation, despite the precious metal's heightened sensitivity to the macroeconomic climate.
Nevertheless, the investigation does signify that gold prices have grown increasingly unpredictable in the 21st century, and it remains uncertain whether this trend will persist after the 2020 election, given that the precious metal is currently trading at unprecedented record levels this year.
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