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Gold and the Election Cycle

Written By Brian Hicks

Posted November 2, 2012

As expected, gold has entered a holding pattern as the U.S. presidential elections draw nearer. Domestic employment data was also released today, showing a slight increase in both jobs and unemployment, something investors were eyeing eagerly.

Early October saw gold hit nearly $1,800/oz. on the strength of stimulus action taken by central banks worldwide, but recently gold has simply coasted along. Even evidence of China’s resurgent economic momentum failed to nudge gold into life.

From CNBC:

“The reason for gold to rise is uncertainty. If PMI numbers rise, that adds to confidence in the market, which is probably negative to gold,” said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.

Spot gold barely moved yesterday, remaining at $1,721.41 per ounce, while U.S. gold rose 0.2 percent to hit $1,722.10.

Historically, of course, gold has tended to react based more on the certainty—one way or another—that comes after the presidential election ends, rather than adopt a course based on who wins the election.

Seeking Alpha’s Amine Bouchentouf examined gold in the presidential context and found that while the first year of a new President sees markets increase 75 percent of the time under Republicans and 58 percent of the time under Democrats, the entire four-year term sees Democrat-led markets outperform Republican-led markets by a comprehensive 2-to-1 majority.

Moreover, markets tend to increase by around 15 percent if the incumbent president wins a second term.

Long story short, gold will not care much whether President Obama remains for another term or Mr. Romney becomes President Romney; what will cause a real shift in gold markets is the stability that arrives once the election dust settles.