A recent report by the World Gold Council (WGC) noted that US gold bar and coin demand has been higher on average during Democratic presidencies.
The data, which draws from the last 37 years, shows that monthly demand in the first year following a Democratic win averages 79,000 ounces of gold, while the average following a Republican win is 32,500 gold ounces.
The WGC report suggests that retail investors’ demand for gold bars and coins is partly driven by their perceptions of economic policies when a Democrat is in office.
These views include the likelihood of administrations to implement policies that could lead to economic instability or higher inflation, prompting them to seek the safety of tangible assets like gold.
However, this does not necessarily mean gold prices follow the same trend. While the report notes a possible correlation, this behavior is not uniformly observed in other types of gold investments, such as ETFs or central bank purchases, showing the complexity of predicting gold prices based on political outcomes alone.
Instead, the report emphasizes the enduring role of geopolitical risk in gold’s performance.
A 100 basis point rise in the Geopolitical Risk (GPR) Index has an approximate 2.5 percent positive impact on gold’s return, according to WGC data, reinforcing gold’s status as a safe haven during times of elevated geopolitical tension.
The GPR Index is constructed using automated text analysis of national and international newspapers, counting the number of articles discussing geopolitical tensions, wars and other forms of political unrest.
The index provides a quantitative measure of geopolitical risk, allowing investors to gauge how such events might influence asset prices, including gold.
Recent geopolitical incidents, such as the attempted assassination of former President Donald Trump and President Joe Biden’s decision not to seek re-election, have had significant impacts on global financial markets.
The attempted assassination of Trump at a rally in Pennsylvania, where he sustained a minor wound, led to a surge in gold prices and Bitcoin prices over the following days.
This incident underscores how sudden geopolitical events can influence investor behavior and drive demand for safe-haven assets, even if the broader trend does not directly correlate with political party dynamics.
The WGC report concludes that while US presidential elections and the resulting administrations do impact investor perceptions and behaviors, these factors are part of a broader array of influences on gold prices. The increase in gold bar and coin demand during Democratic presidencies suggests that retail investors are reacting to perceived economic threats rather than the political party itself.
Thus, predicting gold prices based on political events alone is inherently complex, as investor behavior is influenced by a multitude of factors beyond just the party in power.
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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.
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