Will 2013 be another volatile post-election year for gold?

The prevailing wisdom is that a Romney presidency would be viewed as gold negative and that a second Obama term would be seen as gold positive. However, the history of post-election years since 1971 suggests that the gold market is decidedly indifferent, or apolitical, if you will, about the outcome of presidential elections.

Here is a rundown gold’s performance in post-election years:

1973………+73% (Republican victory)

1977………+21% (Democrat victory)

1981………-32% (Republican victory)

1985………+7% (Republican victory)

1989………-3% (Republican victory)

1993………+20% (Democrat victory)

1997………-21% (Democrat victory)

2001……… 0% (Republican victory)

2005……… +20% (Republican victory)

2009………+24% (Democrat victory)

Of the six “up” years following an election, three occurred when the Republicans won the White House and three when the Democrats triumphed. Of the three “down” years, two occurred following a Republican victory and one when the Democrats won. The average gain in the six “up” years was 27.5%. The average loss in the three “down” years was 18.6%.

The volatility of post-election years in the gold market stands in stark contrast to the relative equanimity of the gold market in pre-election years – a phenomena borne out by gold’s relatively quiet performance thus far in 2012.

Here’s how gold performed during election years:

1972……….+40%

1976……….-4%

1980………+5.4%

1984……… -11%

1988……… -15%

1992………-5%

1996……… -5%

2000………-3.5%

2004……… +3.5%

2008……… +3%

2012…….. + 7% (thru October)

For those who insist that a Romney victory would translate to a down year in 2013 for the gold market, it might be important to note that since 1971 there have been two secular bull markets in gold and both were launched during the presidential terms of Republicans. The first came under Richard Nixon in 1973-74 and the second under George Bush in 2002-2003.

Though it is difficult to make a connection between gold’s post election year performance and the politician who happens to be sitting in the Oval Office, it would be a mistake to assume that politics doesn’t play a role in the gold price. In short the policy matters not the political party orchestrating it.

Congress deliberately staggered the term of office for the Fed chairman to overlap presidential elections by a year in order to keep the electoral effect on monetary policy to a minimum. That means we are going to get at least another year of Ben Bernanke’s policies no matter who occupies the White House. The “money helicopters” will take to the sky at the earliest sign of trouble in the banking system or the economy in general. The “technology” available to the government called “the printing press” will be cranked up and fully engaged should the unemployment rate return to pre-election year stickiness. Barring an unlikely early resignation, the lame duck at the Federal Reserve might play a more decisive role in next year’s gold market than the occupant of the White House. As such, the historic volatility in the gold market that normally follows an election year could very well work in the gold owner’s behalf.

MK
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***** For more information on the effect of Tuesday’s election on the gold market, please visit our latest USAGOLD-TV RoundTable. (This posting is an extension of arguments skillfully presented there.)

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