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What the 2016 Election Might Mean for Gold

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What the 2016 Election Might Mean for Gold

USPresidentialSealAs I'm sure you've already noticed, we're in the midst of an election year. It's hard to avoid the constant, wall-to-wall media coverage of the political circus surrounding the Democratic and Republican Party nomination contests.

This places a wedge between two groups in the country: one group is energized and excited to support their favored candidate, while the rest of the population just wants to shut out the never-ending stream of political news.

No matter which of these two groups you find yourself in, there's at least one thing worth considering about the 2016 presidential election. Depending on who gets elected, will the next president have an influence on the gold market?

Gold as a Hedge

In general, gold is more of a financial asset than a commodity because it responds to all kinds of political and social developments around the world. In times of crisis, war, or general uncertainty, gold is often seen as the best way to protect oneself from upheavals in the market. The precious metals, but especially gold, share very little correlation with other assets, making them a preferred choice for making a financial portfolio "disaster-proof."

bank.vault.gold.coinsAlthough the election of a new commander-in-chief of the world's largest economy entails some degree of uncertainty, the American political system is set up so that very little changes in Washington regardless of which party is in power. So this alone is not usually enough to warrant a lot of disaster planning. (Though the shaky global economy certainly is.)

On both sides of the aisle, however, 2016 is shaping up to be a very different kind of election.

The Entrepreneur and the Socialist

Trump GOP Debate Photo: Gage Skidmore 3

The 2016 election has been full of surprises and breaks from the norm. This is most obvious on the GOP side, where outsider candidates have been far outperforming their more seasoned establishment candidates. From Ben Carson to Ted Cruz to Donald Trump, alternative policies and a promise to shake up the system have been far more appealing to voters than "more of the same."

Federal Reserve Photo: Alex Wong/Getty Images

Somewhat more overlooked is the fact that this trend is beginning to take hold on the Democratic side, as well. Bernie Sanders, an avowed socialist, has been gaining steam throughout the election cycle. Although very few expect Sanders to best establishment candidate Hillary Clinton in the end, it's undeniable that the senator from Vermont has far more energy and excitement behind his candidacy than Mrs. Clinton.

Implications for Gold Prices

Why does this matter to gold? For one thing, having such an outsider win the White House would be an unprecedented result in American politics. This is true of either party. That sort of uncertainty is far above a typical shift in power, and is exactly the kind of event that gold prices respond to.

debtMoreover, Maudlin Economics expert Jared Dillian points out that a Trump or Sanders presidency would have big implications for the U.S. economy. Their stances on other issues aside, it's clear the either of these candidates would be big spenders (and thus accumulate debt). With Sanders this is clear; he's a big-government socialist, after all. In Trump's case, the real estate mogul has proposed sweeping expansions of national defense, border security, and other expensive programs. Whatever you think of the bombastic businessman, he built his fortune by not being afraid to take risks and make big bets.

Both scenarios would be supportive of gold, considering it is a safe haven from rising debt and bloated government spending. (Recall gold's performance during the government's huge spending stimulus following the 2008 financial crisis.) Plus, both candidates are making populist appeals (Sanders on the far-left, Trump on the right) and Dillian points out that "populists are great for gold prices."

It's worth considering, whatever your level of interest in the presidential election, how you might best be able to position yourself financially for a historically unpredictable 2016 election.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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