Gold stocks rally on cusp of US mid-term election results

Given that shares in pure-play gold stocks tend to rise and fall in line with the gold price, investors could be forgiven for scratching their heads this morning wondering why local gold stocks are up between 8% and 15%, while the price of the precious yellow metal has barely budged.

In short, it's all about what’s going in US politics right now. It appears that some investors have been quick to place their bets on yesterday’s midterm elections, which everything being equal, could provide a well needed kicker to the gold price.

For the uninitiated, midterm elections in the US – which are currently still being counted – is when all 435 seats in the House of Representatives, and 35 of the 100 seats in the Senate will be contested. 

Playing the odds

The direct link between the gold price and US elections may not be that clear.

However, according to a World Gold Council report using data going back to 1970, gold prices have gone up more often than not (62% of the time) over the six months following midterm elections.

The median return over that time frame is 2%.

Joe Cavatoni, chief market strategist at World Gold Council has reminded investors that gold prices are more dependent on so much more than the outcome of an election.

Safe haven status tarnished

Having had its former safe-haven status replaced by the rising US$, gold prices are down around -6% over one year.

However, despite the US$ and higher bond yields, gold received some renewed support last week, up over 4%, and some investors may have placed bets on it continuing to rally over the next six months.

Could gold go higher?

If historical results from the World Gold Council report are any proxy, investors speculating on a continued gold price rally could be onto something.

Here’s what the report found

• Gold prices rose 13% in the six months after Republicans had control of the House and Democrats retained the Senate during President Barack Obama’s term in 2010.

• Gold prices held onto a 1% gain six-months following a Republican sweep during President Bill Clinton’s term in 1994.

• Gold prices added 4%, 13% and 5%, respectively, during the three times the Congress became gridlocked.

With polls now closed, counting has begun in what is being hailed as an election that will define the reminder of Joe Biden’s presidency.

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