Real vs Political Economy, and Gold

During every election season, there is talk about the economy.  Regardless as to who is in office or which party is vying for control, there is an effort to influence voters by influencing the messaging about the economy.  Over the next 12 days we can expect to be bombarded with information, and see our fair share of charts and graphs making this point or that.  This article provides a template for nearly any election season (this one included), in terms of what types of things we are likely to hear, vs what types of information we may not hear, but should look at and be aware of anyway.  All these discussions impact precious metals prices, whether overtly and directly, or incrementally over time.  Today we will also apply the template to gold and silver prices, and what the data is telling us to expect about the future.

Most Americans do not study economic data in the normal course of life; it can be a dry topic.  But nearly every American understands how they feel when buying fuel, paying the mortgage (or rent), looking at their retirement accounts, or purchasing groceries.  It is human nature.  So it should come as no surprise that most of the messaging we hear around election time focuses on influencing how we feel about what we understand.  Feelings matter.  This idea is captured in the phrase, “It’s the economy, stupid”, which has resurfaced in nearly every election since first uttered in the 1992 Presidential campaign.  Often it is the prevailing “feeling” of Americans that influences elections, rather than what the underlying economic data reveals about the future.  Most messaging we hear during this season will be about surface topics most of us understand and can relate to.

One of the big questions often asked during election season, is “are we moving in the right direction?”.  It is usually not possible to have everything perfect in the economy at any given time, including at election time.  Most of us know and accept this.  The battle for our support usually centers around how we feel about the perceived direction we are heading.  What will help us as individuals, is to learn how to analyze the underlying data to help prepare for the likely direction we are headed, perceived or not.  It is sometimes not how we feel or what we know that matters most in an election; it is how most Americans feel that makes the difference.  Whether we are on the winning side or not is irrelevant in the short run.  Whether we are prepared for the future that comes is very relevant, and is the primary purpose for this article.

Ronald Reagan was a President (and candidate) that stirred strong emotions, on both sides of the aisle.  In my family there are some that passionately supported him, and others who were passionately opposed to him.  But one thing most agreed on was his ability to communicate and connect with voters, including those from the opposing side.  His famous closing remarks during a debate in 1980 moved the emotional needle with voters, without using a single graph or shred of statistical data.  He set records in that election as a Presidential challenger, that have not been equaled since.  This is an example of how the feelings of voters often matter more than any substantive data or statistics revealing likely future directions.  A view of underlying statistics might have changed the election results, if people understood inflation was already moving lower thanks to FED Chairman Paul Volcker.

Some of the items politicians talk about and people consider are fuel prices, food prices, and stock prices.  Most don’t talk about gold, but we will since it likely effects those of us reading this article.  But a discussion about fuel prices might go something like this, depending on which side you prefer.  “Gas prices are coming back down (from June 13, 2022 - $5.10/gal national average), after Russia attacked Ukraine; we are getting back on track.

Similar points will be made about the stock market.  “We reached all time highs in the stock market last year (Dow Jones Industrial Average was 36,398), before Russia invaded Ukraine.  But since the lows in June this year (28,705), we are moving back up, recovering 12% (32,320) and moving higher.”  The other side may say, “We are still below 2020 highs (32981), and many have experienced losses; it is time for a change.”  A look at underlying data reveals that all the classic signs of recession are flashing red, and the environment will be difficult for stocks after the election, no matter who wins. 

Regardless of how people feel about gas prices, the stock market, interest rates, the election, or life in general, changes are on the horizon.  We are on an unsustainable path economically and fiscally.  There is plenty of blame to go around, and we didn’t get here overnight.  But we appear to be close to the point of no return, without serious intervention.  The current battle seems to be whether to save the system, or save the currency.  I suspect some of both will be sacrificed, of necessity.  This is an environment in which gold thrives.  The world is moving away from dollars, and towards gold - but not completely.  Dollars will continue to play an important, albeit diminished role.  The level of difference between spot and physical indicates that the future of precious metals pricing is moving in favor of those who own physical metal.