According to the theory of the Presidential election cycle, U.S. stocks experience weakness in the year after the election. The cycle then may revert back to stronger equities until it is time for the next election.
What may drive initial weakness in equities followed by a rebound?
The answer is reforms, new policies and a degree of uncertainty. Think about it this way: When a newly elected President takes office, he or she may look to deliver on plans discussed on the campaign trail, even if those plans may cause some short-term pain with the hopes of long-term gain. After all, candidates will often run on the notion of sweeping changes to improve American life. When first in office, it is easier for a President to implement such plans even if unpopular.
As the next election approaches, however, the President and his or her party may look to please voters and keep equity markets strong while showing voters how well the economy is doing.
Now consider the gold market. Gold often times exhibits a negative correlation to equity markets and other risk assets. When investors are hungry for risk, stocks may head higher while gold and other perceived safe haven assets may stagnate or decline. According to this relationship, gold should see strength the first year of a new President’s term and should see weakness thereafter.
But hold on a minute…
Looking at gold following recent elections does not show this theory to be valid.
Just look at the current election cycle… Uncertainty heading into this election may potentially be far more significant than in previous elections.
Consider the candidacy of Donald Trump, for example. Currently leading in the Republican Party, Mr. Trump could potentially bring a sea of change to U.S. monetary and foreign policy. How investors and global markets could potentially react to a Trump nomination or Presidential victory remains unknown.
While the uncertainty surrounding potential changes in key areas of policy could potentially weaken the dollar (which could potentially drive gold higher), gold may rise either way as investors seek out its perceived refuge.
The fact is that with or without an election around the corner, gold has a number of factors that would seem to be working in its favor. Some of these include Chinese economic weakness, QE, geopolitical issues and more.
And while gold could potentially benefit from the uncertainty surrounding the next election, the reality is likely that any effects on gold from the election are likely to be short-lived.
What will then be the primary drivers behind gold’s fortunes?
Ongoing QE in parts of the world.
The real threat of deflation.
A possible stock market crash.
Sovereign debt issues.
Failure of fiat currencies.
We are of the view that gold is set to move higher from current levels regardless of who takes office. Stock markets will likely not go up indefinitely, debts will have to be paid and changes could be seen in global trade and the balance of power.
The world may see a return to real money. The world may see a return to gold…
Gold has been considered a reliable store of wealth and value through all types of economic conditions for thousands of years. Governments and central banks buy and hold it – why shouldn’t you?
Adding an allocation to physical gold has never been easier than it is today. In fact, your existing IRA account may be the ideal vehicle for building a significant precious metals portfolio.
Act now before stocks crash or economic conditions deteriorate. Speak with an Advantage Gold account executive today. Our professionals will show you just how easy it is to begin acquiring and holding physical gold bullion in your IRA account to help protect your purchasing power and financial future. Call us today at 1-800-341-8584.Tags: add gold to my ira, advantage gold, buy gold, deflation, fiat currency, gold bullion, physical gold, precious metals, presidential election, quantitative easing, sovereign debt, stock market crash, us stock market