Tips for Investing in Gold During an Election Year

Regardless of your political leanings, election years always bring a little bit of anxiety. That’s especially true of the presidential election cycle. However, federal elections can have lasting consequences for investors, who could stand to lose—or gain—significant value depending on which political party takes power in November. 

Trying to figure out what makes the most sense for your money before (and after) the election can lead to lots of questions, including whether it makes sense to move funds in and out of traditional IRAs, what kinds of stocks to invest in, and more. 

Let’s explore how elections impact the stock market and investments. We’ll also talk about how self-directed IRAs (including Gold IRAs) can help mitigate some of the uncertainties around your investment portfolio. 

How Elections Have Historically Impacted the Market and Investments

Each political party will tell you that their policies have better outcomes for the economy, including the financial markets and investments. These pronouncements often come from lobbyist groups and think tanks. But how do you know which one is telling the truth, and which is simply telling you what you want to hear? 

The good news is that past elections have historically had a nuanced impact on the stock market and investment trends. Those nuances are largely due to the policies and priorities of the prevailing political party.  

The other good news? Despite those fluctuations, one constant remains: Over time, the S&P 500 has continued to demonstrate growth. That said, Republican and Democratic administrations have each had specific impacts: 

Republican Administration Impacts

• Aerospace and defense: Republican leadership tends to emphasize defense spending and military priorities, often leading to growth in the defense and aerospace sectors.  
• Financials and small-to mid-cap stocks: These segments also see upward trends and benefit from favorable policies and regulatory environments that Republican presidents often propose. 
• Trade policies: Because Republican administrations tend to be hawkish about strengthening the U.S. dollar, higher tariffs can result—especially on imports from countries like China.  
• Tax policies: Republicans typically try to stimulate economic growth via tax cuts and extensions of tax cuts. These have significant implications for federal taxes and bond yields. 

Democratic Administration Impacts

• Healthcare and green energy: Democratic leaders have historically boosted sectors like healthcare and green energy. This reflects broader agendas based on social welfare and environmental sustainability. 
• Tax policies: Democrats have implemented tax cuts and extensions but often aim those policies at different income brackets.  
• Sector performance shifts: Changes in policy in Democratic administrations have often led to noticeable shifts in sector performance that align with the party’s broader economic and social objectives. 

Sitting administrations can influence short-term market dynamics, but it’s the overall economic conditions at the time that play a more decisive role in market outcomes. Investors should maintain long-term perspectives and focus on overarching goals. Don’t get sidetracked by temporary uncertainties. Not only does this approach help navigate the market more efficiently, but it can better serve your long-term goals. 

How Elections Impact Gold Prices

Investors often see gold prices as a barometer for global economic stability. As with other economic outcomes, elections can significantly impact those prices. Why? Because of the uncertainty and policy changes they bring. 

The anticipation of a new administration can introduce speculation about future fiscal, monetary, and foreign policies. These policies can sway investor sentiment and consequently affect gold prices. Let’s explore how investor sentiment and economic policies might influence the price of gold. 

Investor Sentiment

Investor sentiment plays a critical role in gold pricing dynamics, especially during election years. Even though there’s plenty of room for nuance, elections can cause market volatility. In times of political instability, investors might flock to gold because they think it’s a “safe haven.” That demand surge usually leads to higher gold prices. 

Why do investors see gold as a safe haven? Risk aversion and speculation or forecasting. 

During contentious elections, concerns over policy changes and their economic impact can lead to an increase in risk aversion among investors. Because gold can help hedge against this uncertainty, the price goes up as buyers seek it out. 

Sometimes, investors engage in speculative trading based on predicted outcomes. If investors anticipate significant changes that might destabilize markets or—more likely—devalue currencies, they might increase their gold holdings as a precaution.  

Economic Policies

Economic policies have direct and indirect effects on gold prices because those policies influence inflation rates, currency values, and overall economic health. Consider the following: 

• Inflation expectations: Fiscal policies that can lead to higher inflation make gold more appealing to investors. Because they see gold as a hedge against inflation, any policy that can reduce the buying power of fiat currencies typically boosts gold investments. 
• Interest rate policies: Investors closely watch central bank policies on interest rates. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, which makes them more attractive. An election outcome that favors lower interest rates could lead to higher gold prices. 
• Currency fluctuations: One of the more prominent election outcomes that can influence gold prices is currency fluctuations. A weaker currency makes gold cheaper for investors who hold foreign currencies, which could push prices upward thanks to higher demand. 

Long story short: Elections represent a period of opportunity and uncertainty for gold investors. Understanding the nuances of how investor sentiment and economic policies influence gold prices can provide valuable insights to navigate the market during these times. 

Historical Gold Trends

Ultimately, gold prices have continued to ebb and flow over the past two decades. In 2004, the price of gold per ounce was $634. Compare that with today, when it sits at just over $2,300. In the past 20 years, gold prices have ticked steadily upward, with the only decline between June 2013 and September 2018. 

The data shows that for gold, the year after a presidential election is often the worst performer. But the midterm elections can bring a rally in the rate of return. 

Ultimately, the price of gold is on the upswing. Buying now could allow you to take advantage of future price increases, regardless of which candidate wins the 2024 election. 

3 Tips for Investing During an Election Year

So, how should you invest during an election year? While we always recommend speaking with a dedicated financial advisor before making any decision that could impact your retirement planning or investments, consider the following: 

1. Don’t Worry About Which Party Wins the Election

Being apprehensive about which political party wins the election is normal. However, historical data suggests the market tends to rise over time regardless of which party is in power. What’s important is that you look beyond immediate political changes and focus on long-term investment strategies. Reflect on the resilience and stability of gold as an investment. 

2. Don’t Time the Market Around Politics

Attempting to time the market around politics is highly speculative and can lead to missed opportunities. Elections can introduce short-term volatility into the markets, but the effects are generally temporary. Sectors like gold thrive during periods of uncertainty, including elections. Investors should generally focus more on well-diversified portfolios than trying to time their decisions based on election speculation. 

3. Don’t Worry About Primary Season Volatility

The primary season leading up to a general election can be a volatile period, but it’s often short-lived. Remain focused on a diversified strategy that accounts for your individual risk tolerance and investment horizons. 

Want to Secure Your Wealth During Uncertain Times?

Economic uncertainty can make people do a lot of wild things, especially regarding their investments. But if you really want to secure your wealth, it might make sense to invest in diverse assets—including gold and other precious metals. 

“Investing in an election year can be volatile, but it’s also an opportunity,” says Jeremy Blossom, Senior Analyst at Everlasting Wealth. “I strongly advocate for diversifying your portfolio with physical precious metals. Gold and silver offer a tangible safeguard against market fluctuations and political uncertainty, ensuring your wealth remains protected regardless of the outcome.” 

Not sure where to start with Gold IRAs and other self-directed retirement assets? Advantage Gold can help. Let our team walk you through the basics of Gold IRA investment, including what kinds of assets you can purchase. We’ll carefully answer your questions and tell you about what kinds of precious metal assets might make sense for your specific financial situation. 

To learn more about Gold IRAs and precious metal investment, download our free Gold IRA guide today.