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Gold ETFs Aren't Beholden To Election Results

The SPDR Gold Shares (NYSE: GLD), the largest gold-backed exchange-traded fund, has retreated from recent highs but it's still higher by 24.37% this year.

· 10/14/2020 14:11

The SPDR Gold Shares (NYSE:GLD), the largest gold-backed exchange-traded fund, has retreated from recent highs but it's still higher by 24.37% this year.

What Happened: In the run-up to Election Day, GLD and other gold ETFs could be in the spotlight, but history, including some of the recent variety, indicates GLD and friends aren't as politically sensitive as some investors believe.

That could be a good thing going forward. As it stands today, investors added $21.47 billion to GLD this year, a total surpassed by only the Vanguard S&P 500 ETF (NYSE:VOO).

Why It's Important: Buoyed by low interest rates throughout the world and a bout with equity market volatility caused by the coronavirus pandemic earlier this year, gold ETFs are on a torrid pace of asset gathering, trouncing previous records.

While pre-election jitters could be a catalyst for GLD and friends, post-election is the time frame investors should examine and it looks good for gold ETFs.

“The yellow metal has historically performed slightly better when a Democrat has been in the Oval Office compared with a Republican — 11.2% vs. 10.2%, respectively,” according to State Street research. “While gold appears to fare well regardless of party politics when it comes to the presidency, this does not appear to be the case for the US Congress.”

Interestingly, GLD investors may want a Congressional blue wave rather than a victory by former Vice President Joe Biden because when Democrats control Congress, gold's average annual returns approach 21%, more than five times that of when the GOP is running things on Capitol Hill.

What's Next: Whether it materializes in practice remains to be seen, but of the two political parties, Democrats are viewed as the more profligate spenders and that often provides some ballast for gold when that party has congressional majorities.

“A standpoint of expected higher fiscal spending may help explain gold’s performance during periods when the US budget deficit as a percent of US Gross Domestic Product (GDP) grows,” notes State Street.

That scenario also is bad for the dollar and a weaker greenback is generally supportive of higher gold prices.

Conversely, if history is an accurate guide, investors may not want to expect much out of GLD if President Trump snatches victory from the jaws of defeat.

“The sentiment of uncertainty due to a new administration may be part of the reason for gold’s performance immediately following a change in leadership. Conversely, when the incumbent party retained control of the White House, gold tended to underperform against US equities and Treasurys,” said State Street.