I often speak of gold as a form of wealth insurance that enables you to diversify your holdings and protect your savings and your retirement when other assets are losing value. It's a role that gold has played for generations, and it’s more important today than ever before.
But we’re hearing from some of our clients who say they’re waiting to buy gold until after the presidential election in November. They view the election with some trepidation and want to see the outcome before buying the wealth insurance that gold affords. Does this urge to wait make sense?
Gold is wealth insurance during economic and political storms.
No, for several reasons the urge to wait doesn't make sense. We'll start with the insurance analogy.
If you lived in an area with a high risk of hurricanes, would you wait to buy home insurance until you knew that a Category 3 or Category 5 storm was headed your way? Of course not. Responsible homeowners get coverage irrespective of the weather forecast. They know the time to buy insurance is when they have something to protect, not when it is under threat.
Besides, insurance can be more expensive with disaster looming—if it's available at all. Similarly, gold is likely to become more expensive as an election fraught with risk approaches.
Gold prices have risen under every president for more than two decades.
That's right. Gold owners have profited under every president, Republican or Democrat, since Inauguration Day, January 2001. And over that period gold prices have risen 800%. What other form of insurance performs like that—not only increasing in value, but doing so eight-fold?
So, the question has not been whether gold would rise during a president's term but by how much it would rise.
Back in November 2023, we published a blog post analyzing how the price of gold changed on every Inauguration Day since 1980, as well as in the two weeks and two years following. According to our research, the largest swing in gold prices two weeks after Inauguration Day happened in 2017, when Donald Trump became president and gold dipped 5.4%. However, over the course of his 4-year term, gold increased by 47.9%. And under Joe Biden, gold has risen another 8.1%, setting an all-time high of $2,135/oz. only a month ago.
Gold has performed in both good times and bad.
Here's another reason not to wait: Gold price appreciation does not depend on bad news.
Our nation certainly has seen some hard times since Inauguration Day 2001. The 9/11 attacks and the fight against terrorism. The wars in Afghanistan and Iraq. The financial crisis and Great Recession. A crippling global pandemic and the inflation that followed. The conflicts raging today in Europe and the Middle East. The saber rattling from China and North Korea. Our own domestic political divisions. Gold has provided a safe haven throughout these difficult days.
But we’ve seen good times over these years, too. The U.S. economy more than doubled in size. We recovered from the greatest financial crisis and worldwide recession since the 1930s. We came through the worst global pandemic in more than a century. And now, with inflation and interest rates falling, we’re witnessing a historic rally in gold prices.
Gold's strong performance in both challenging and prosperous times makes it a powerful addition to a portfolio, offsetting losses in hard times and supporting asset appreciation in good times.
Three sources of uncertainty will drive gold prices in 2024 and beyond.
War: The German war theorist, Carl von Clausewitz, famously observed that “war is an extension of politics by other means.” 2024 will illustrate that dictum.
Over the last year our world has transitioned from cold diplomatic maneuvering to outright warfare on a scale not seen since WWII. Intensifying combat in Europe and rapidly metastasizing conflict in the Middle East threaten international trade and global oil supplies. Taiwan’s recent elections produced new leadership that gives Beijing cover to deepen its confrontation with the United States and our allies. North Korea doesn't need cover to continue its incessant threats against its neighbors. Conflicts of this scale and scope tempt dictators to roll the dice on war.
Rumors of war, threats of war, and outright warfare drive people the world over to seek the safety of gold.
Interest rates: The second source of uncertainty is inflation and the tight-money policies the Federal Reserve employs to defeat it. More than any other single factor, inflation and the Federal Reserve's monetary policies drove gold prices last year, and they will do so again in 2024.
High interest rates appear to have worked. Gold rallied in November and December with the first clear signs that the inflation dragon had been slain. The questions that loomed over gold prices in 2023, “How high will the Fed raise rates, and how long will it keep them elevated?”, have been replaced in 2024 with the questions, “How soon will the Fed cut rates and how fast will it lower them?” The sooner and the faster the Fed reduces rates, the sooner and faster gold is expected to climb.
But war complicates this picture. If the Fed decides military conflict will weaken the U.S. economy, we can count on it to cut interest rates sooner and faster to stimulate the economy.
Again, that's good for gold. But if war disrupts oil supplies leading to higher energy prices, the Fed could raise rates to preempt a resurgence in inflation. Higher interest rates would reduce gold's upward momentum.
The election: The third source of uncertainty is the presidential election. By far, the most likely scenario is for the margins to be razor thin in several crucial states, with the Electoral College outcome hanging in the balance. This scenario encompasses fierce legal and political battles preceding the election and persisting through the meeting of the Electoral College in December, the counting of Electoral Votes by the House of Representatives in early January, through and perhaps beyond Inauguration Day 2025.
A succession crisis like this is unprecedented in our country, and its fallout is unknown and unknowable. What is certain, however, is that the uncertainty and fear accompanying this struggle would deeply affect our nation and spread across the globe in innumerable manifestations.
The global flight to safety that follows would focus on gold since the role of the dollar as a safe haven would be placed in doubt by political instability in the United States.
Gold prices are set to explode in 2024. These three sources of uncertainty will receive intense media attention, in the United States and around the globe. Few people will escape the coverage of these events. This scrutiny will increase the appeal of gold as a safe-haven asset, increasing demand and driving prices higher.
As events unfold, uncertainty generated by war, interest rates, and the election are likely to ebb and flow over the course of the year. But when these three forces converge—as seems most likely late in the year—the effect on gold prices could be explosive.
