Could Political Instability in Washington Be Good for Gold?

With the past few years having been so turbulent, there was hope that 2023 would bring a return to normalcy. After COVID, a disputed election, a Russian invasion of Ukraine, and a year that saw both stock markets and bond markets lose value, hopes were high that things would turn around this year.

Unfortunately, while 2023 seemed to start off on a positive note, things deteriorated towards the end of the year. Markets seem to have lost their momentum, the Middle East is in turmoil, and Washington is once again facing political instability. But could this be good news for the gold price?

Unprecedented Action in Washington

Former House Speaker Kevin McCarthy (R-CA) became the first Speaker in US history to be ousted from office, an unprecedented move that shook up Washington and exposed the rift that exists within the GOP. With the House now tied up with the race for Speaker, Congress’ ability to get anything done has ground to a halt.

One of the biggest issues facing the country right now is runaway federal spending, something that the House has to tackle. But many establishment Republicans seem to favor kicking the can down the road, hence the displeasure at McCarthy’s tenure as Speaker.

What makes this case particularly difficult is that Congress has only about 35 days left before it once again has to pass a spending bill to keep the government operating. The longer the House takes to pick a Speaker and get legislative business going again, the shorter the amount of time to negotiate a spending bill.

This impasse shouldn’t come as a surprise, however, as many Republicans are fed up with a national debt that is approaching $35 trillion. Just as a point of reference, it took until 1981 for the federal government to accumulate $1 trillion in debt. And now the government has increased that nearly 35-fold in just over 40 years.

Even worse, annual budget deficits aren’t shrinking either, with the projection for FY2023’s deficit to come in at nearly $2 trillion. So the government added more than twice as much to the national debt in just the past fiscal year as the government did for the entire 192 years form 1789 to 1981. That’s insane.

Even worse, this $2 trillion deficit comes with Republicans in control of the House of Representatives, which is supposed to originate all spending bills. If Republicans are this bad at keeping spending under control when a Democrat is in the White House, how can we expect them to show fiscal restraint if a Republican wins in 2024?

It’s this disillusionment with the Republican leadership that has so many grass roots Republicans and the Congressmen who represent them upset. And by not paying attention to their grievances, McCarthy and the Republican leadership sowed the seeds of their own destruction.

Where From Here?

Right now everything is up in the air. The Speaker’s race is between Steve Scalise, the former head of the Republican Study Committee, and Jim Jordan, the founder of the Freedom Caucus. Scalise is the establishment favorite, while Jordan is the favorite of fiscal conservatives and Tea Partiers.

Scalise would arguably be better than McCarthy, given his background. And having seen how not being conservative led to McCarthy’s ouster, you would have to think that he would toe the line.

But there’s no guarantee that the next Speaker will be able to keep federal spending in line, even if Jordan were to win. And that could anger staunch conservatives.

What Does This Mean for Gold?

Gold is an asset that has been sought after as a save haven and a hedge against inflation for centuries. Whenever political or economic stability threaten, many people look to hold gold to help maintain their wealth or to get them through troubled times.

Right now the political instability in Washington may be helping the gold price, which is up about $50 already this week after last week’s lows. And the more turmoil and instability there is in Washington, the better that could be for the gold price.

Markets are already fearing the impacts of higher interest rates, and the Fed’s insistence on keeping interest rates higher for longer has stirred up fear on Wall Street. No one knows what the future will hold, but fears of recession continue.

With Congress essentially out of commission for the time being, and the Fed insisting on tight monetary policy, there’s not really any hope of anything changing for the better in Washington. And with such political and economic uncertainty in the air, it’s no surprise that many people are looking to gold to protect themselves.

Gold as a Safe Haven

Gold’s history as a safe haven asset and store of value makes it a popular destination for those looking to protect their wealth. When other assets begin to lose their luster, gold tends to shine.

Right now markets seem to be troubled. With fear of recession looming, no one wants to see a repeat of 2008, when markets lost over 50% of their value.

But bond markets aren’t doing that great either. For those looking for a place to park short-term cash, 5.5% interest rates are great, but for bond investors who look to hold their bonds for a while, rising bond yields mean lower bond prices.

This double whammy, which we first saw last year as both bond and stock markets lost value, is highly unusual. But, it has many people looking for gold.

Gold’s performance during the 2008 crisis and beyond was pretty fantastic, with the gold price rising 25% from October 2007 to March 2009, the same time period in which markets lost over 50% of their value. And from its 2008 lows until its all-time highs in 2011, gold nearly tripled in price.

Gold has done this historically too, such as during the 1970s stagflation, when the gold price’s annualized gains averaged over 30% per year over the course of the decade, a fifteen-fold increase. If gold were to see similar performance during the next crisis, gold owners would be very happy indeed.

If you’re worried about the impact political instability in Washington could have on your finances, now may be the time you want to start thinking about gold. There are numerous ways to buy gold, from direct cash purchases to buying gold with a gold IRA, there are choices available to suit everyone.

With over 5,000 5-star reviews and over $2 billion in precious metals placements, Goldco works hard to bring our customers quality products and superior customer service. Contact Goldco today to learn more about your gold buying options.