Which U.S. political party is best for the price of gold? Gold hit some of its highest price levels under the Republican President Richard Nixon, but also under Democratic President Jimmy Carter. It was at lows under President Ronald Reagan and its lowest in real terms under President Bill Clinton. Hmmm… No conclusion there.
If you are wondering whether President Barack Obama or Governor Mitt Romney will be good or bad for the precious metal that backs the almighty U.S. dollar, forget party affiliation because, in fact, it turns out to be a popularity contest.
James Steel, a precious metals expert at HSBC, has taken historic gold price data and tracked the price against the U.S. presidents from the Vietnam War era to the present. By overlaying presidential job approval rating data from Gallup against gold prices, he has determined that popularity and price are inversely correlated, meaning the less popular the president, the higher the gold price.
That makes sense using the examples above. During President Nixon's tenure, 1969-1974, he faced the Vietnam War, Watergate, and, ultimately, his resignation. In that period, gold increased from $42 on the day of his 1969 inauguration to $154 per ounce when he left office, a change of 267%.
President Carter, 1977-1981, had the Iran hostage crisis and 1979 oil crisis, causing gold to rise 322% from the first day of his term ($133) to the last ($562). In fact, at $850 an ounce in January 1980, the gold price reached its highest level ever in real terms under Carter.
Simply put, when Americans are nervous or dissatisfied with their leaders, presidential approval ratings go down, and money flows into gold (a sensible alternative to the mattress).
By comparison, popular presidents keep gold prices low. Under President Reagan (1981-1989), the price declined from $562 to $406 per ounce. Reagan's popularity dipped during the Iran Contra affair in 1986, which correlated to a rise in gold prices. President George H.W. Bush's popularity rose with the onset of the First Gulf War in 1990, but steadily declined thereafter around the same time gold prices were on the rise.
A popular president for most of his term, Clinton (1993-2001) bore witness to gold hitting an all-time low in real prices of $253 per ounce in the summer of 1999. (And, yes, that is after his popularity decreased and the price of gold increased during the Monica Lewinsky scandal in 1998.)
When George W. Bush entered office, his popularity was high and the price of gold was low. That changed, however, after September 11th, 2001 and -- as world events worsened and his popularity eroded -- the gold price steadily increased.
With President Obama, we clearly see the highs and lows. Great enthusiasm with his election in 2008 correlated with low gold prices. In fact, Obama's highest approval rating coincided with the lowest gold price, which was set the month he took office in January 2009. That changed, however, in April 2010, when Obama's approval ranking sank beneath 50% and the price of gold began its steady acceleration, which culminated in gold hitting an all-time high of $1,895 in September 2011. Political pundits often stretch to draw parallels between Presidents Carter and Obama. Politics aside, one parallel we can certainly draw between the two is both Presidents Carter and Obama have presided over all time high gold prices, both in nominal and real terms At this writing, gold is around $1,780 an ounce. Whether it goes up or down after November 6th won't depend on whether a Democrat or a Republican is elected president. Historical data shows that gold will go down in price whenever a U.S. president is able to increase economic stability, decrease armed conflict, and avoid scandal. And, in that case, we should all vote for the candidate who will prove to be the most popular.
Will Rhind is the Managing Director of US Operations for ETF Securities, which introduced the first physically backed gold exchange-traded fund in 2003. Today, physically backed ETFs are available in the U.S.: for gold (SGOL and AGOL), silver (NYSEARCA:SIVR), platinum (NYSEARCA:PPLT), palladium (NYSEARCA:PALL) and a mixed basket of precious metals (GLTR and WITE).
Sources: Presidential job approval data is from Gallup. Gold prices are based on the London Bullion Market Association's daily PM fix.