Do Politics Affect the Price of Gold?

by IRA Rollover in Politics & Gold with Comments Off on Do Politics Affect the Price of Gold?

Nearly everything affects the price of gold because human nature being what it is, we want to feel secure. If the market falls or inflation creeps up, people panic financially. When housing prices rise people feel wealthy and spend more freely even though they probably shouldn’t.

We’ve all seen how the market fluctuates during a presidential election cycle and how the price of gold can rise and fall as the campaigns progress. As one or the other candidate moves ahead the price moves accordingly. A candidate with solid fiscal policies might influence the stock market one way while a more socially aggressive candidate can produce the opposite effect. 

Are Politics the Only Factors that Affect Gold Prices?

If you’ve been through a few presidential elections you may have noticed how gold prices fluctuate as one candidate or another moves ahead. Their potential policies either frighten the market or reassure it and it rises and falls accordingly. But gold prices depend on other factors, too, and during election years these factors are substantially impacted by who is running. The price of gold is mainly affected by: 

  1. The global economy
  2. Inflation
  3. Interest rates
  4. Other financial assets such as bonds and currency
  • Inflation Raises Prices, Not Values

Inflation is one factor that frequently affects gold prices. Simply put, inflation means higher prices and high wages, an inflating of the currency. As prices rise and consumers make more money the price of gold also rises because it takes more dollars to buy the gold. The value of gold remains the same as it always was but since the currency is weak you will need more dollars than you used to in order to buy an ounce of gold.

Put another way, your favorite steak cost $3 a pound last year but this year it is $3.15. The price has been increased 5%. You are still getting a pound of steak but spending more dollars for the same item. Gold that cost $1200 an ounce last year has risen to $1260, also an increase of 5%. You are still getting an ounce of gold but you have to pay more for it since the dollar isn’t worth as much as it was last year. 

politics effecting economy

  • The Global Economy

The value of a country’s currency is important to every other country that deals with it. If China’s currency falls in value that means that the goods they produce will be cheaper for other countries to buy. Of course, that means that selling goods to China will be more expensive. It also means that consumers will favor Chinese goods over native goods since they are cheaper; the native market will likely suffer from over supply and lack of demand. Employers may have to let some workers go, reduce production, and raise prices in order to make a profit. This can result in inflation and cause the price of gold to rise.

gold ira world economy

  • Interest Rates

In Mid-March of 2015 gold hit a low of $1,142 because investors thought that the Fed might raise interest rates. Low interest rates means that bonds won’t perform well so people buy gold and other precious metals. High interest rates make bonds and fixed-income investments more attractive; demand for gold is low and the price for gold falls. Investors will always turn to the assets that increase their wealth.

  • Alternative Financial Assets

Bonds and currency trading can be very profitable for investors. When interest rates are high, bonds are a good investment. (A bond is a loan wherein the investor makes money on the interest) Currency trading can also be profitable depending on how good an investor is at tracking trends and buying at the right time.

gold ira financial assets

It All Ties In

So how do these four financial aspect factor into the effect of presidential elections on gold prices? Every presidential election since 1888 has seen the stock market drop around .5% in the first week the new president takes office. This can affect the global economy in a domino effect and indeed, it has in years past. As the global economy rises and falls, so do gold prices.

Gold prices are sensitive to politics because politics greatly influence economics. When national debt is a concern because of excessive spending, employment figures fall, and when inflation is high gold prices go up because the dollar is weak. Gold prices tend to be higher (and the dollar lower) during the 2nd term of any president.

A president with sound fiscal policies will usually encourage economic growth and stability, making the dollar stronger and gold prices more stable. Likewise, a president who spends most of the nation’s wealth on expanding social programs may see a weakened dollar, at least at first, as money is invested in social progress rather than tangible products. How the economy reacts to government policies affects the dollar and thus the price of gold.

It’s no wonder that gold fluctuates so much near the end of an election cycle and in the beginning term of a new officeholder.

With all these political and economic factors, any one of which can change in an instant, it can be hard to gauge when it would be the most advantageous to buy gold. A wise investor watches current events but makes regular investments in gold, setting aside money buying at regular intervals regardless of the price. Diversifying your investments and making gold an important part of your retirement portfolio will insure that your wealth grows steadily and securely.

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