Mitt Romney is clearly trying to create a more distinctive Republican Presidential ticket with his just announced choice of Rep. Paul Ryan as his running mate. Mr. Ryan has been a leading critic on the size of the U.S. government and the entitlement programs that go along with it. His addition to the campaign ensures an escalation of the assault on the fiscal state of the Union. Like Al Gore's famous "lock box" talking point on Social Security, Romney and Ryan are likely to create a memorable mantra on the challenging fiscal condition America finds itself in today. While the stats and examples may be depressing, they may have the effect of beating up the U.S. dollar in the short term, which could help gold prices to rally.
Since the euro crisis has heated up, a strengthening U.S. dollar has helped to take the wind out of the sails of the price of gold. Take a look at the one year performance of leading physical gold ETFs, GLD and IAU, courtesy of gold ETF focused site GoldETFs.biz (see disclaimer below).
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The negative performance of gold as the EU crisis has elevated has been troubling for gold investors. Traditionally a safe haven in times of crisis, gold has been bypassed in favor of greenbacks. Here's the one year chart of the PowerShares DB U.S. Dollar Bullish ETF (UUP) - which shows the relative strength of the U.S. dollar versus a basket of six other developed currencies - versus GLD. The chart is from the NASDAQ's interactive chart center and shows the U.S. dollar's ascent.
The increased value of the U.S. dollar has caused gold investors to suffer in two ways. First it has reduced the demand for gold which obviously pushes prices down. Second, as gold is primarily denominated in U.S. dollars, a stronger dollar has meant gold is worth less dollars. These two factors, along with a variety of negative demand developments in leading gold consumers India and China, have left gold investors out in the cold despite a global crisis heating up.
A national debate in the Fall highlighting the poor fiscal state of the United States, should take some of the shine off the U.S. dollar however. While it will likely yield tough talk on solutions from both President Obama and Governor Romney, there will remain considerable doubts as to whether any winner of the race will be able to navigate the politics of putting the U.S. fiscal house in order. This again should benefit gold by shaking the U.S. dollar.
While many factors influence gold prices and the U.S. dollar, the national and international perception of the U.S. fiscal condition will likely be tinged this election season. Rep. Paul Ryan's choice by Mitt Romney effectively guarantees that the mounting debt and spending problems of the United States will be a major issue in the coming months and that could be a material catalyst for gold investors.
Disclaimer: Christian Magoon is the Publisher of GoldETFs.biz.