Gold investing demand just hit 20-month highs ahead of
the UK Election...
But if David Cameron is having a bad General Election
2015, the clowns he's opposing are doing no better. Voters are sure to do
most badly of all.
Can you claw something back – or cut your losses – by
moving your money for fear of the outcome this week? Other private investors
sure think so.
April just saw the strongest net gold buying on
BullionVault since August 2013, led by UK investors. Our users added 410kg
net, over 40% more than the monthly average addition to client gold property
since we launched 10 years ago this week. In total this takes BullionVault
clients' private gold holdings to a new record total of 33.6 tonnes – more
than most of the world's central banks own – all vaulted securely
in 5 locations worldwide as each client chooses, and now worth £830
million, some $1.3 billion.
Fact is, however, quitting shares ahead of the Election
could prove smart whoever wins (or doesn't). Our analysis shows that
historically, after the 13 General Elections of the last five decades, shares
prices have fallen on average.
The past is no guide etc etc, and these are only the
averages. Mean averages at that. (See the medians here, with half of all outcomes better
and half worse.) What's more, ten of the 13 General Elections since 1964 were
held – like this year's – in Spring. So the following drop in equities could
simply reflect the seasonal 'Sell in May' pattern.
But the stock market's averages do, however, show an
initial rise after a Tory win. Indeed, only 5 times out of a possible 21 have
UK equities risen 1, 2 or 3 months following a Labour win since 1964, versus
12 out of 18 under the Tories.
Like the UK stock market, gold prices tend to soften in summer. So gold's average
rise 1-3 months after a UK election is notable. It should also challenge any
ideas of gold being opposite to equities like Labour is supposed to be the
opposite of Tory. Because while gold's mean average shows a greater 1-3 month
rise under the UK's pseudo-socialists, the price of bullion actually rose
more often during the first 3 months of Conservative governments (13 out of a
possible 18 times, versus 11 out of 21 under Labour).
Election 2015 may of course see neither of the big two
parties win enough seats to try and form a government. Such uncertainty over
the economy's future under a weak government, a fraught coalition, or even a
repeated election (please, no!) will likely mean investors stay shy of risk
and reach out for safety.
But if there is a clear winner, which political party
would be better for asset prices in the long run? You might answer that
bigger, global trends are what count. In which case, why bother picking
between the parties at all? Did the global financial crisis really have
nothing to do with political choices?
Longer-term conclusions are hard to draw, because
yes – the averages are of course smoothed out by the last
half-century's broader asset price trends. Sterling's exchange rate, for
instance, has halved since the mid-1960s, while gold, bond prices, equities and
most especially house prices have risen consistently, all outpacing
inflation.
Still, Labour's time in office does show a worse average
record for Sterling, Gilts and notably the stock market. Check the median
too, meaning half of all outcomes were better and half worse.
Gold's mean average gain under the Tories is flattered by
the surge after world currencies were de-pegged from bullion in 1971. But UK
savers now face similar monetary and political uncertainties to four decades
ago, too.
As in the 1970s, the mood music remains interest rates
stuck below the pace of inflation to try and boost growth, and to cut the
real value of debt. A return of 'stop go' policies is a very real threat, forced this
time by big spending promises meeting the need to raise taxes. And neither
major party is likely to win a decisive mandate this week, because the
nation's broader consensus is splitting.
At a guess, therefore, we think April's strong UK demand
for gold may well continue over the summer (more typically a quiet time) as
people look to protect their broader investments against a messy, protracted
outcome from May 7th. The real mess might then only begin.