How Election Results Could Affect Gold ETFs

With some favorable economic data and intensifying speculation that the Federal Reserve will cut interest rates in September, gold prices rose last Friday.

Encouraging economic and rate cut chatter are likely to continue looming large for gold and exchange traded funds such as the WisdomTree Efficient Gold Plus Gold Miners Strategy Fund (GDMN) over the near term, but advisors and investors should also consider potential impacts on bullion by way of the presidential election –the landscape for which recently changed dramatically with President Biden deciding not to see a second term. That makes Vice President Kamala Harris the presumptive Democratic nominee.

To its credit, the actively managed GDMN  includes exposure to both gold mining equities and bullion futures credit. It has delivered on gold’s promise of being a shelter from volatility. Over the past month the ETF surged 9.51%.

For GDMN, Gold, Policy Matters More Than Party

Market participants typically view U.S. presidential elections through the lens of which candidate will be better for various asset classes. But policies are more important than party and that’s relevant advice when considering gold and ETFs such as GDMN.

“Our analysis suggests that while US gold bar and coin demand seems to increase, on average, during Democratic presidencies, this is not the case with other segments of investment demand,” observed the World Gold Council (WGC). “In addition, party affiliation does not have a consistent impact on price during U.S. elections. Instead, economic policies, both domestic and foreign, of any given president are more relevant to the behaviour of financial assets, including gold.”

Of course, elections have binary outcomes. And that element is why so many investors are fond of gauging potential effects of political outcomes on asset classes. That includes gold. For those considering GDMN, there are opposite trends to be aware of leading up to Election Day on November 5.

Historical Trends Not Guaranteed to Repeat

“Gold appears to do slightly better six months before a Republican president is elected. And it remains flat in the period post-election. Conversely, gold tends to underperform before a Democratic president is elected. And perform just below its long-term average in the six months post-election,” added the WGC.

Historical trends aren’t guaranteed to repeat, but they often do. Still, for those considering assets such as GDMN, the focus should be on macroeconomic issues.

“Our analysis of gold and U.S. presidential elections suggests that gold is not reacting directly to party affiliation or changes in leadership. Rather, it highlights the relevance of key global macroeconomic drivers of gold’s performance in contrast to specific local dynamics,” concluded the WGC.