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Gold Loves “Bad News” (and Bad Presidents) and We’re Liable to See a Lot More of Both

By Louis G. Navellier May 7, 2016

As of 8:29 am Eastern time last Friday, gold stood at $1278 per ounce, a healthy 20% rise for the year but poised on the cusp of a big rise or big fall after release of the monthly jobs report at 8:30 am.  Then, in a sudden “New York minute,” gold shot up $15 to $1293 as of 8:31.  As it turned out, economists were expecting to see 200,000 net new jobs in April, but the official number came in at only 160,000, a 20% miss.  In addition, the Labor Department revised the previous two months’ job totals downward.  Along with other downbeat economic indicators, this points toward a slow- or no-growth U.S. economy in 2016.

Slow growth tends to reduce the likelihood that the Federal Reserve will raise interest rates.  This, in turn, gives gold a longer-term advantage over paper money, which offers either negative absolute returns (in Japan and Europe), or negative “real” (after-inflation) returns in the U.S. dollar and most other global currencies.  After Friday’s jobs report, the probability of a June rate hike –as reflected in the Fed Funds futures market, a kind of “betting pool” on future rate hikes – fell from 10% down to just 4%.  (At the beginning of the year, at a time when gold was $1060, the odds of a rate hike by June 2016 stood at 75%.)

Gold’s Price Jump After a Weak Jobs Report

The two most widely-watched U.S. economic statistics each month are the Jobs report (released on the first Friday of each month) and the monthly GDP revisions for the previous quarter (usually released on the last business day of the month).  On April 28, the U.S. Commerce Department announced that its preliminary estimate for first-quarter GDP growth was a tiny 0.5%.  The decline in the last four quarters resembles the “half-life” series of a radioactive element: Specifically, America enjoyed a robust 3.9% growth rate in the second quarter of 2015, followed by 2% in the third quarter, 1.4% in the fourth quarter and 0.5% in early 2016.  This piece of bad news on the GDP front sent the price of gold sharply upward:

 

Gold’s Change Before & After a Weak GDP Report

As we weight each of the major economic statistics for 2016, we’re liable to see more daily jumps like this when we see a low growth rate for the U.S. GDP or a weak jobs report at the start of each month.

But there’s something important developing over the longer term.  Now that Donald Trump and Hillary Clinton are the presumed Presidential candidates for the two leading political parties, we need to turn to history to see how gold rates the Presidents over the last 40 years Americans have been free to buy gold.

 

How Gold Rates the Presidents

Gold rose from a fixed $35 per ounce during the 40-year span from 1934 to 1974, but Americans were not free to buy gold bullion during those years.  When President Gerald Ford signed the legislation making gold ownership legal for Americans as of the end of 1974, gold peaked at $195 per ounce.  When it was legalized, however, gold began falling, reaching a low of $104 in September 1976 when a new candidate for President began to surge in the polls, a peanut farmer from Georgia, Jimmy Carter.  Soon, gold began its greatest bull market in history, 1976-1980, due to Carter’s economic malaise (dubbed “stagflation”).

Gold Rates Presidents by Rising (on Bad Policies) or Falling (on Good Policies)

In general, gold has risen when a President’s economic policies tend to promote slow growth, inflation, a weak dollar, rising interest rates and other negative outcomes.  Gold’s three “worst” Presidents, by this accounting, were Jimmy Carter (+427%), George W. Bush (+179%) and Barack Obama (+74% so far).

By the same token, gold “approved” of the economic policies of the three Presidents from 1980 to 2000, since the price of gold declined under all three: Reagan, -35%; (2) Clinton, -22% and (3) Bush 41, -19%.

This is not a partisan statement since there are good and bad Presidents listed from both major Parties.

This year, we have a choice between two Presidents who are likely to offer counter-productive economic policies, with Donald Trump threatening to erect trade barriers, limiting global trade, and Hillary Clinton promising more regulation of drug companies, financial companies and some other out-of-favor sectors.

Bill Clinton’s administration resulted in a steady decline in the price of gold, reflecting a strong U.S. economy and a balanced federal budget. The same is unlikely to happen under Hillary Clinton.

“Bill Clinton’s administration oversaw the deregulation on Wall Street. All that makes the question of how Hillarry would regulate the financial sector a crucial test of her campaign to win the Democratic nomination. With a plan she released Thursday, we got a first glimpse of how she would walk that balance beam. The short version: Directionally, Mrs. Clinton favors more intensive regulation of Wall Street than what is in place now.” — Neil Irwin, writing in The New York Times, “How Hillary Clinton would Regulate Wall Street,” October 8, 2015.

Throughout the rest of 2016, we can expect short-term rallies in gold on the release of economic “bad news,” followed by a likely long-term bull market in gold under the policies of the next President of the United States – either Trump or Clinton.  Now is the time to stockpile gold in advance of the election.