I am writing this article on election day here in the US to discuss the path of gold forward when elections occur because they are unique events that only happen every few years. What might we expect to happen after the election? Here is a preview of what experts say should come next.
Per the World Gold Council (WGC) via the Wall Street Journal, gold rises 62% of the time, within 6 months, after US mid-term elections. As of the time of this writing (11-8-2022), gold has already risen 2% on election day right after lunch in anticipation of the expected bump coming after. But will it stay there?
Gold is Not Technically Bullish
Looking at a recent 6-month chart on gold, it is hard to be bullish on higher prices. The metal derivatives on COMEX have consistently failed to break above the 50-day moving average, which is the first indicator we need to see to call a bull market in gold. And I strongly prefer correlation with another indicator as well, which at a minimum need to be the 200-day moving average plus an important resistance line for traders.
Technical trading, or trading by charts and indicators, is an imperfect science. It is an encapsulation of the millions of individual trading decisions made on an everyday basis. And I don’t know about you, but I have never had luck betting on the two-leggers. Never had much luck betting on four leggers either, but gambling on horses, et. al had never been my forte either.
But technical analysis is something more because we have computer algorithms trading as well. And we are not sure how good they are at it yet – it all depends on what the programmers decided to do with the software. Did they build a robust engine that seeks data points throughout the economy and sets forward prices on the model accordingly? Or do they just watch momentum and trade in the general direction of it to make their pennies millions of times over?
That is the $9.7 trillion question that the whole gold market is trying to figure out. Because if you can figure out the algorithmic trading patterns you can win at the ‘game’ of future gold spot prices. I don’t doubt that is partially what is behind the gold and silver rally today. Traders know the data point I led off with about elections and are eagerly front-running their positions on the futures market in anticipation of getting a nice bump in the gold price.
But make no mistake, these traders will sell off at the first chance they get to make a few pennies on a short contract. Collectively, they will probably do it millions more times because, well, that is the type of market we are dealing with.
Elections, OR the Love Trade?
Does gold ever rise long-term anymore? Looking at the above chart, it appears traders haven’t bought into the long-term, fundamental story on gold that we talk about as enthusiasts all the time. That’s ok because in the long term all truths become self-evident. What matters today in finance carries about as much weight tomorrow as an ant’s food does. Which isn’t much. No, the traders will flip positions as soon as they think there is money to be made in it, which in the case of a mid-term election day, there is.
Don’t be disappointed when gold prices fall again after this rally. They will probably fall several times between now and spring when the mid-term effect has faded. It’s not just the mid-terms that affect gold for 6 months. The fall and winter seasons are typically bullish for gold anyway due to the ‘love’ trade.
The love trade comes from Chinese and Indian cultures who actively seek out gold (and to a lesser extent silver) during these times of year for weddings and other celebrations where the rite of passage is passed to a new generation in the form of gold jewelry and other gifts. The roots of these celebrations were set thousands of years ago, and quite honestly, are more important than US mid-term election results.
In the US we tend to think of everything with red, white, and blue glasses. But, we are but a spec on the timeline of the civilization that has developed its affinity for the precious metals over many, many generations, and across many seas and mountains. Without turning this into a hallmark commercial, gold and silver have stood the test of time. Regardless of the US election outcome, they will still stand for LONG after they are over. And they won’t care who is in office.
Vote for Gold
So go vote for your favorite politician, and hope that we all do what they say and at least keep a small percentage of their promises. But while you do that, remember that gold is immutable and does not care which flavor of political pundit takes the podium. That is because gold absorbs everything mankind can throw at it and keeps coming back for more.
It doesn’t matter how many elections occur, wars break out, nations fall, or sunrises and sunsets we have. Gold has always been there. And I hate to point it out in our age of delicate sensibilities (read: political correctness), but the fact is gold will be here long after humans are dead and gone.
While it is here, however, it does make sense to follow it closely. For it may be the only thing that gets us through that next election, that inflated grocery bill, that next expensive car payment, or first of month rent/mortgage due day. It may be the only piece of sanity in your world this time of year in which great promises are often made, but seldom achieved.
I vote for gold because it is not man-made. I vote for gold because, eventually, it always does what it should do. And that is to maintain value while standing the test of time. That’s exactly what I want in my portfolio, election cycles be damned.
