Election time is upon us once more, for the third time in just four years. People across the UK have taken part in a number of votes in recent years, on Scottish independence, EU membership, and three hastily called general elections. These events highlighted the great amount of political turbulence we’ve been seeing during the last four years.
Snap elections are rarely held in the autumn or winter, but Boris Johnson’s wish came true just a few weeks ago, when MPs voted in favour of the first snap election held outside spring or summertime since October 1974.
If you know anything about political and economic history, 1974 was part of an era fraught with polarised politics and a rising tide of high inflation. These factors combined to help propel gold prices higher and higher, as part of a decade-long bull market, lasting for a number of years after the October 1974 vote.
Let’s explore the possibility of the election affecting gold value.
History repeating itself
The October 1974 election is important to highlight, as it was actually the second of two elections held that same year. The first, in February 1974, was inconclusive, and saw Conservative Prime Minister Edward Heath lose power, amid strikes, the first oil shock and the economic crisis that followed.
When his successor, Harold Wilson, called the second election in late 1974, gold was worth just £68 per troy ounce. By the time another election was held, in May 1979, gold prices had soared to £118. During that time, politics became even more divisive and double-digit inflation persisted, causing the Pound to drop like a stone. The result was an election affecting gold price through resulting currency devaluation.
To put this into perspective, gold is currently worth £1,142 per troy ounce, as of late November. A similar five-year price bounce could result in gold being worth £1,987 per troy ounce by 2024. It’s important to stress that past performance isn’t always indicative of future returns, but it serves as a useful precedent, to show just how rapidly gold prices can flip to the upside, and just how high they can rise.
Stay up to date on the latest gold prices, by following our very own Live Gold Price chart. It’s updated on a regular basis each day, so you never miss a price movement.
Where are we now?
Past performance is all very well, but how is gold performing right now? Here at the Gold Bullion Company, we’ve noted that prices have taken a short breather, after an exhilarating bull run during the summer, which took them to an all-time high, above the crucial £1,200 per troy ounce level. But that’s just taking out the all-time high, in nominal terms.
Adjusted for inflation, gold is yet to break out to higher highs, as consumer prices have risen since the 2011 price peak. This current price dip could prove to be a tempting time to invest, before prices rise even further in the coming months, and there are plenty of reasons to expect higher prices resulting from the election affecting gold value.
Brexit has been delayed yet again, until late January 2020, but looms large on the horizon. If the forecasters at Electoral Calculus are correct, Boris Johnson could be on-course for a majority of seats in the House of Commons. However, this assumes the Conservative poll lead remains in double-digits.
Mr Johnson’s predecessor is remembered for having called a snap election of her own, while riding high in the polls, only to lose her majority on the day itself, resulting in much of the political turbulence we’ve been experiencing in the last few years. Gold has certainly been able to benefit greatly from this, having risen by 50 per cent since mid-2015.
Potential short-term gains
If you’re looking to invest in gold but want to know what kind of short-term gains could be potentially made in the event of an inconclusive snap election result, we only need to look at what happened in May 2010. Back then, voters returned MPs to Westminster in a hung Parliament for the first time in 36 years. David Cameron’s Conservatives were back in power, but forced to form a coalition with the Lib Dems.
Markets were already jittery, and gold prices benefited from this sentiment enormously, rising from £750 in April, when the vote was called, all the way to £854 in mid-May, once the coalition had formed, after days of wrangling and uncertainty. That was a gain of 14 per cent in just a single month as an indirect result of the election affecting gold value.
If replicated over the current election cycle, gold prices could rise as high as £1,301, meaning a break-out to a new all-time high yet again. Think of it as a nice golden surprise as we go into Christmas.
Investments to consider today
The rising political uncertainty surrounding Brexit and the snap election increases the potential for the Pound to remain weak, and gold could make respectable price gains in a very short period of time, if precedent is any guide. The 1980 gold mania saw prices quadruple in just five months, so exceptional price rallies aren’t out of the ordinary for the yellow metal.
As we explained in one of our most recent pieces, the 2020 Gold Britannia is now available. It could ensure greater clarity, as you start planning your portfolio for 2020 and beyond. Struck in 24-carat gold, and weighing one troy ounce, it has a face value of just £100, but its true value is closer to £1,184 at current prices in late November.
The difference between face value and true value just shows how the Gold Britannia has been able to not only maintain value over the decades, but gain significant value, as inflation has eroded the value of the Pound in our pockets. This is precisely why investors regularly cite gold as the perfect inflation hedge. It’s hard to find an asset that can preserve wealth so consistently.
If you’re curious about buying gold bullion or coins, but have any queries holding you back, don’t hesitate to contact us here at the Gold Bullion Company. We’re dedicated gold specialists and look forward to handling any questions you might have regarding gold as an investment.
