These pages just predicted that gold will finish 2025 strong, however, historically during post-election periods, there are some interesting tendencies which impact the gold market and this year will not be an exception.
In the past year, this chart reflects a perfectly normal mistrust of the Federal Reserve’s actions thus far and their inability to understand the difference between rotational inflation based on a small portion of consumer consumables versus embedded inflation due to long term monetary excess.
These pages have long advocated that this is a fundamental belief in the loss of faith in the Federal Reserve’s ability to deal with embedded monetary inflation due to their policies since 2009.
To get a better picture of gold’s price action however during periods of US economic and political instability, let’s review the historical record during periods of major US strife.
Let’s start with the period after the 1980 election:
This was not just an era where the American people had lost faith in the government and executive branch of the US, but where the inflation was rampant and the foibles of the Federal Reserve became apparent. The Fed Chair, Paul Volcker, initiated the necessary rate increases and monetary contraction to bring inflation under control but at the same time, helped to usher in a much more severe recession for the newly elected Reagan administration.
Gold behaved exactly as it should in a major economic contraction with actual deflation, something the American public had not really experienced since the 1930’s.
The next era worth review is that of the 2007-2010 GFC as the Federal Reserve and the new administration had to deal with massive instability once again.
This time, heading into the election, the fears of a total economic collapse were hitting American markets in 2008. People were selling gold to raise cash, bank runs were rampant, and worse, the US was dealing with leadership at ever level in Washington, DC paralyzed by incompetence.
Once Obama won the election handily, the belief took hold that massive fiscal stimulus would occur and that was validated in March of 2009 by Fed Chairman Bernanke’s actions which created Quantitative Easing to infinity and beyond.
With those two most recent tales of the tape, why is this post election period of 2024, the Federal Reserve’s actions leading up to the Presidential election, and the doubts about the competency of Jay Powell’s policy maneuvers creating more instability?
There is a belief that the Fed is no longer believable nor using data that is valid in their policy decisions. In the short term, the interim belief is that the Fed will become more hawkish in their January 2025 meeting then sit tight for the majority of the year.
This will be bearish for gold until after February 15, 2025 in this author’s opinion.
Why?
While many will initially believe the nonsense coming from incoming US Treasury Secretary Scott Bessent, the DOGE crowd, and the Republicans in the House and Senate, reality is the interest rate payments on the existing debt in addition to the incessant spending habits of the GOP will result in the outcome Jay Powell prayed to avoid:
Much more severe levels of staglflation.
It’s these pages belief that stagflation began in earnest last year, but now it’s almost a mortal lock that the US will experience periods of cyclical inflationary surges along with negative to stagnant economic activity. The larger point is that if anyone believes that incoming President Donald Trump’s State of the Union speech on February 15th will be anything but inflationary is on crack cocaine for lack of a better term.
This is almost the most perfect formula for gold prices to drop to some degree in the first 40-60 days of 2025, then surge higher with the ebbs and flows of inflation during the year.
Buckle up boys and girls, 2025 is going to be one hellaciously wild ride.
And thank you to X’s Grok for the creation of this posting’s cover photo.
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