Gold in an Election Year

SOURCE: [Resource Investing News] – Investors will likely remember that it was about a year ago that gold hit a $1,900 peak. Since then it has been a bumpy ride for the metal. On Tuesday, gold was at about $1,666 an ounce. Weak prices have been blamed on a number of factors — from lack of demand in India and China to the European debt crisis — but there may be another explanation: the upcoming US election.

Gold prices generally languish in the year leading up to a US presidential election, said Terry Hanlon, president of Dillon Gage Metals (DGM), a bullion dealer.

In a note published last week, the company reminds investors that in March 2008 gold prices rose to over $1,000, but dropped to $740 in November when the elections took place.

“Not only do incumbent presidents try to keep the public focused on good economic news” — which is not good for gold, writes Hanlon — “but the White House also typically tries to jawbone the price of gasoline downward to keep inflation in check.”

Poor economic data and inflation are two major drivers for gold. Individuals who cite the connection between lower gold prices and US presidential elections believe that political leaders distract gold investors by distorting the picture of the economy and embellishing upon the record of their policies.

For a better understanding of the situation, all investors need to do is tune into the news following the release of important economic data such as a US employment report. The Republican camp, aiming for the White House, will insist that the latest release proves that the economy is ailing. President Obama’s camp will be ready to insist that the same data shows that, to the contrary, the country is heading in the right direction and doing much better than it did under the leadership of Republican President Bush.

But prominent gold supporters insist that shenanigans can only divert attention away from gold for a certain amount of time. Reality always surfaces, they warn.

One such supporter is Peter Schiff, CEO of Euro Pacific Precious Metals. He believes that money cannot continue to be “just a piece of paper” backed by nothing but other paper currencies.

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Post from: Gold News from Gold Editor

Gold in an Election Year