Gold and US presidential elections

How has the price of gold reacted to US presidential elections?

Day returns

The following chart plots the average daily returns of gold for the nine days around the US presidential elections (1968-2012). So, the chart covers the period of the 4 days before the election and the 4 days after. For example, for the 12 US presidential elections from 1968 the price of gold has increased on average 0.2% on the day of the election itself (D0).

Gold and US presidential elections [1968-2012] (1)

As can be seen…well, in fact, nothing much can be seen as there’s no clearly discernible pattern of behaviour here.

Let’s now see if there’s any significant difference in behaviour depending on whether a Democrat or Republican wins the election.

The following chart plots the average daily returns for gold for the election day and four following days. The averages are split as the  average for the five times a Democrat has won compared to the seven times a Republican has won.

For example, in the five elections that a Democrat has won the White House, the average daily return of gold the day following the election (+1D) has been 1.1%.

Gold and US presidential elections [1968-2012] (2)

Generally, the price of gold has been stronger following a Democrat win, and especially strong on the day following the election.

Let’s now zoom out time-wise and look at gold’s month returns around the elections.

Month returns

The following chart shows gold’s average month returns for the three months before, and three months after, US presidential elections.

Gold and US presidential elections [1968-2012] (3)

Historically, the gold price has been weak in the month leading up to the election (-1M) with an average month return of -1.8%. Following the election the price has tended to bounce back, with an average return in the following month of 1.1%.

The following chart plots the proportion of months seeing positive returns in these six months around the election. For example, the price of gold has only risen four times in the month before an election in the 12 elections since 1968.

Gold and US presidential elections [1968-2012] (4)

This chart largely supports the the observation in the preceding chart which is that the price of gold is weak in the month preceding an election, and strong in the following month.

Now to see if there is any difference in the behaviour depending on whether Democrat or Republican wins the White House.

Gold and US presidential elections [1968-2012] (5)

In the month following an election gold has risen on average 1.7% if a Democrat won, and 0.7% if a Republican won. The performance differential becomes more pronounced in the second and third month after the election – with gold seeing month returns of over 4% in the case of a Democrat win, and negative month returns in the case of a Republican win.

Caveat: this analysis involves a very small sample size (there have been just 12 elections since 1968) so the results can not be regarded as statistically significant. But, given that caveat, it does seem that gold loves Democrats!

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UK equities and the US presidential election cycle

The chart below shows the 4-year US presidential election cycle (PEC) superimposed on the FT All-Share index from 1956. The vertical bars indicate the timing of the November elections every four years.

FT All-Share Index and 4-year US election cycle

It can be seen that on occasions the US presidential election has (approximately) coincided with significant turning points in the UK market; notably those elections in 1960, 1968, 1972, 1976,2000, and 2008.

Returns in each year of the PEC

The following chart shows the average annual returns for the FT All-Share Index for each of the four years in the US presidential election cycle. PEC(1) is the first full year after a presidential election, PEC(4) is the election year.

FTSE All-Share and 4-yr PEC (annual returns)

Typically, presidents have primed the economy in the year before elections [PEC(3)] – or, at least, stock markets have expected them to do so.

And the following chart plots the proportion of years that saw positive returns in each of the four years in the PEC.

FTSE All-Share and 4-yr PEC (positive returns)

For the 15 presidential cycles from 1948 to 2008, the FT All-Share Index saw positive returns in every third year of the cycle. But in the two cycles since 2008, the Index has had negative returns in PEC(3).

US presidential election data

For reference below is data on the US presidential elections since 1948.

Election date Elected President Party Popular vote(%) Electoral vote
02 Nov 1948 Harry Truman Dem 49.6 303
04 Nov 1952 Dwight Eisenhower Rep 55.2 442
06 Nov 1956 Dwight Eisenhower Rep 57.4 457
08 Nov 1960 John Kennedy Dem 49.7 303
03 Nov 1964 Lyndon Johnson Dem 61.1 486
05 Nov 1968 Richard Nixon Rep 43.4 301
07 Nov 1972 Richard Nixon Rep 60.7 520
02 Nov 1976 Jimmy Carter Dem 50.1 297
04 Nov 1980 Ronald Reagan Rep 50.7 489
06 Nov 1984 Ronald Reagan Rep 58.8 525
08 Nov 1988 George H. W. Bush Rep 53.4 426
03 Nov 1992 Bill Clinton Dem 43.0 370
05 Nov 1996 Bill Clinton Dem 49.2 379
07 Nov 2000 George W. Bush Rep 47.9 271
02 Nov 2004 George W. Bush Rep 50.7 286
04 Nov 2008 Barack Obama Dem 46.2 365
06 Nov 2012 Barack Obama Dem 48.1 332

See also: other articles on US elections

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Equities in US presidential election years

The 14 charts below show the performance of the FTSE All-Share index over the 12 months of a US presidential election year. For example, the first chart shows the January-December performance of the UK market in 1960, the year John Kennedy was elected President of the United States. The dashed line in each chart indicates the date of the election.

Market in US presidential elections years

Historically, the UK market tends to rise in the few weeks leading up to the election.

The following chart plots the annual returns of the FT All-Share Index in years of US presidential elections.

FT All-Share annual returns in US presidential years

See also:

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US mid-term elections

Multiple ballots are held at the time of the US mid-term elections, including those at the municipal and state level, and also all the seats are up for election in the House of Representatives and a third of the seats in the Senate.

They are called “mid-term” as they take place in the middle of the four-year presidential term; in other words they take place two years after the presidential election. As such they are often regarded as a referendum on the performance of the prevailing president and his party.

In a recent article in the Financial Times, Ken Fisher described a market anomaly that he calls the 86.4 per cent miracle. According to Fisher, since 1925 returns on the S&P 500 have been positive for 67.4% of all calendar quarters, but for the 4th quarter of a mid-term election year and the two following quarters returns have been positive on average 86.4%. Fisher summarises-

midterm elections mean three straight quarters where the market rises 28 per cent more of the time than average.

What is the reason for this? According to Fisher: legislative gridlock. During electioneering campaigns politicians promise lots of radical legislation (that investors invariably dislike) to buy votes. But the reality of most mid-term elections is that the president’s party loses seats resulting in gridlock in Washington. In other words, while there is much sound and fury in the lead up to an election, it is followed by relative political calm – which investors like.

Given the high correlation of the US and UK equity markets, might this anomaly also apply to the UK?

The following chart plots the proportion of positive returns for the FTSE All Share Index for all quarters (grey bars) and those for the 4th quarter of a mid-term election (MTE) year (purple bars) and following 1st and 2nd quarters. To analyse the consistency of the anomaly over time, results are given for four different time periods.

For example, for the period 1910-2014, the FTSE All Share Index has had positive returns in 61% of all quarters, 62% of 4th quarters of a mid-term election year, 77% of the following 1st quarters, and 81% of the following 2nd quarters.

US mid-term elections and positive returns for FTAS [2014]Looking at the above chart the first observation to make is that the UK market experienced a greater proportion of positive returns in the 4th quarter of mid-term election years and the following two quarters than the average for all quarters – and this applied for all four of the different time periods tested. So this was consistent with the US results quoted by Fisher.

Regarding the period 1925-2014 (the period referred to by Ken Fisher), returns have been positive in 62.1% of all quarters (this compares a figure of 67.4% for the S&P 500 quoted by Fisher), and the average for the three (MTE) quarters has been 75.8% (compared with 86.4% for the S&P 500). So, where Fisher found that the three (MTE) quarters rose 28% more of the time than the average, in the UK the equivalent figure has been 22%.

A second observation to make is that the out-performance of the 4th and 1st (MTE) quarters over the average for all quarters has markedly increased in the most recent period from 1980. And that since 1980 the (MTE) quarter with the highest proportion of positive returns has been the 4th – in fact the UK market has risen in every 4th (MTE) quarter since 1980.

The following chart is similar to the above, except that it plots the average returns instead of the proportion of positive returns. For example, since 1910, the average return of the FTSE All Share Index for all quarters has been 1.5%, for the 4th (MTE) quarter it has been 2.4%, for the 1st (MTE) quarter 6.3%, and for the 2nd (MTE) quarter 4.2%.

US mid-term elections and average quarterly returns for FTAS [2014]Generally, the same profile of performance seen above is repeated here – all three (MTE) quarters out-perform the average. Since 1925 the average return for all quarters has been 1.7%, whereas the average return for the three MTE quarters has been 5.0%.

In 2014 the US mid-term elections will be held on 4 November, while the 4th (MTE) quarter starts 1 October. Fisher predicts “glorious gridlock” and a consequent “magical melt-up” for the market.


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