Political Uncertainty May be A Reason to Own Gold
Inflation is a commonly stated reason to own gold. Gold holds its purchasing power as the supply of gold remains relatively constant vs. potentially vast and unlimited increases of government- issued currency. Increasing the currency supply is inflationary if the amount of goods and services do not increase in a corresponding fashion. Large increases in a country’s currency supply may undermine confidence in the issuer of that currency, causing its value to drop vs. the value of gold.
Political uncertainty can also undermine confidence in a country’s currency. A politial crisis may also presage a lack of confidence in a government’s currency.
Gold, in contrast, is a stable element, unlike governing political bodies that may be subject to whims, corruption and poor judgement. Ruling regimes don’t last forever, but gold does. Gold provides a solid hedge against political misdeeds and reckless monetary policies.
The Trump vs. Clinton Match-Up
The United States is viewed by the world as a stable democracy and is the issuer of the world’s reserve currency. As such, U.S. Treasury Bonds are the most widely held and traded security in the world. This year the presidential match up between Hillary Clinton and Donald Trump threatens to undermine the perception that the United States is unflinchingly stable.
The Presidential campaign is causing and will cause political uncertainty no matter who wins. This may be good for gold.
The Democratic and Republican candidates for President this year each have the potential to create tremendous political uncertainty if they win.
Donald Trump reflects obvious uncertainty due to his outsider status and anti-establishment rhetoric that ranges from diatribes against the mainstream media, referring to his opponent as “Crooked Hillary” and claiming there is a rigged system that includes the FBI and the Department of Justice. Mr. Trump’s statement in the third Presidential Debate that he will not necessarily accept the election results added yet more uncertainly.
Trump’s lack of decorum and unconventional proposals ranging from building a wall on the border of Mexico, instituting 35% tariff on imported goods, undoing trade agreements, freezing government worker hiring, defunding U.S. climate change funding to the United Nations and re organizing NATO, all have the potential to produce uncertain and unintended consequences.
If Trump is elected and does some of the things he says, there will be a period of uncertainty as the impact of his initiatives become felt. This uncertainty might create an ideal environment for gold ownership.
Hillary Clinton’s candidacy on its face would appear to be the safe choice. After all, Hillary Clinton has been the First Lady and a U.S. Senator, positions that normally inspire trust. In the current anti-establishment political environment, these positions often evoke distrust in many circles and a lack of qualification and, in some instances, disdain.
Revelations about Hillary Clinton’s health, her mishandling of classified information and allegations of pay to play corruption at the Clinton Foundation, have raised widespread voter distrust in her fitness to be President. According to a recent Rasmussen poll, fity-three percent of voters think Ms. Clinton should have been indicted for her ‘extremely careless’ handling of classified information while Secretary of State. An even larger percentage of voters view her as “untrustworthy”. Ms. Clinton is viewed by wide swaths of voters as the embodiment of what Trump calls the “rigged system”.
If Clinton is elected, especially in a close election, charges of fraud, a rigged system and corruption are sure to follow. Depending on the veractiy of those claims, confidence in the election process may fall. In addition, if Ms. Clinton is elected, she will most likely be plagued with Congressional hearings regarding the Clinton Foundation and her role, if any, in voter supression and intimidation as revealed in the Project Veritas videos.
A President under seige is damaging to the dollar and positive for gold. The US Dollar Index fell for many years during the Watergate Era of Richard Nixon in the early and mid 1970’s while the price of gold began it climb to an all time high. The price of gold rose from $35 an ounce in 1971 to $800 by 1980 a gain of over 2100%! The Watergate Era was also marred by increasing inflation that helped boost the price of gold.
If the US enters a period of political uncertainty, coupled with rising prices, we may witness a repeat of Watergate Era style rising gold prices.
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.