Gold and gold ETFs started 2018 off in fine form, but the stronger dollar and rising Treasury yields have been hampering the yellow metal. For example, the SPDR Gold Shares (NYSEArca: GLD) is off more than 6.5% in the second quarter, sending it to a year-to-date loss of 3.33%.
The strengthening U.S. economy is translating to a stronger dollar, which is often a problem for gold. Gold, like other commodities, is denominated in dollars, meaning it has an inverse relationship to the U.S. currency.
With midterm elections looming in November, investors may want to review gold’s performance in midterm election years, particularly with the possibility of control of one or both houses of Congress flipping.
What The Data Says About Gold
Data ranging from August 1971 through the end of May 2018 indicate “that a House controlled by Democrats appears to be friendlier to gold over the S&P 500 Index than a Republican-controlled House. But keep in mind—this data is skewed by oil price shocks in the 1970s and early 80s,” according to State Street Global Advisors (SSgA).
Over the same period, gold performed better when Democrats had control of the Senate, but the S&P 500 delivered better gains when Republicans held Senate majorities. Gridlock can also be good for gold.
“Gridlock—when neither the Democrats nor the Republicans have a single party control over the House, Senate and presidency—historically has still been positive for gold performance, but at only half the performance rate of the S&P 500,” said SSgA.
Related: World Gold Council, SSGA Launch Low-Cost Gold ETF
While the environment today is highly partisan, it pays to remember that other factors beyond the party in control of Congress affect gold prices.
“Consequently, we believe it is not the political party that drives gold’s performance but rather underlying factors such as economic growth, consumer confidence, inflation expectations and oil prices,” according to SSgA.
GLD has lost $1.01 billion in assets since the start of the second quarter. Only seven ETFs have seen larger outflows.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.