One of the questions I’m often asked by clients is, “What will happen to gold if the Republicans win in November?”  And the actual answer usually surprises a lot of people.  First of all, let me be clear that I do not do politics.  Like gold, I am not for or against a political side.  My areas of concern and study are monetary policy and the history of money.  And while I see many systemic problems in banking, taxation, trade and especially monetary policy, please understand that none of these systemic issues has ever been meaningfully affected by party changes or elections.  Gold sees these systemic problems, too, which is why gold is not political.  Gold is fiscal truth, politics is not.

So what is my answer to the question, what will happen to gold if the Republicans win in November?  The simple reality is, gold doesn't care who wins the election or what party is "in power."  It cares much less than you do, and – regardless of political-party puppet shuffling – gold prices will go much higher no matter who wins.  This is precisely why I'm agreeing with a number of experts and projecting gold to surge to $3800 regardless of who wins the presidency.  Most are shocked by my opinion that the election results and even a possible new president will have absolutely no effect on gold's trajectory.  But when one really starts to understand what the gold price is actually tracking, it becomes clear why it won't matter at all.

The Net Effect on Debt

Take a close look at the U.S. Treasury debt, because any expert who tracks gold knows that gold typically follows U.S. Treasury debt.  The U.S. Treasury reports – and posts right on its website – debt and deficit projections.  Most of the major economic estimates put the U.S. debt around $28 trillion by 2018 regardless of who wins the 2012 election or the 2016 election.  It seems that regardless of who "wins," our children lose because the U.S. Treasury is projecting a $1.5 trillion deficit per year for the next 6 years.  If the U.S. Treasury and the accumulation of U.S. Treasury debt has the same trajectory under a Republican president as a Democratic one, then gold has the same trajectory as well.

Now take a look at the crisis in Greece.  Regardless of who wins the election, Greece will likely default.  And party change will not affect the U.S. banking system’s exposure to a Euro crisis.  If Obama loses in 2012, our debt trajectory doesn’t change at all.  The banks are in no better shape (and in many respects worse) than they were in 2008, regardless of who wins in 2012.  The U.S. derivatives market – the one that almost brought the entire banking system down – is still HUGE and is still unregulated, and I don’t see any candidates running on regulating it.  There are no additional people working now than there were after the crisis in 2008 – forget official stats; look up “labor participation rate."  And I don’t see "meaningful" job creation being significantly affected by party.  More important than anything (especially to gold), neither Democrats nor Republicans have shown any meaningful fiscal responsibility when they've gotten power.  Regardless of party, politicians actually have little incentive to fix the problems that exist systemically today. They focus on getting reelected, which means loading up on lobbyist money, making decisions that benefit the few, and losing all pretense of fiscal responsibility.  Gold knows this fact, even though some people still don't, which is why gold is poised to make major gains irrespective of who wins in November.

Beyond Politics

The reality is, the fundamental forces that have caused gold to triple since 2001, and which are still accelerating, are not embedded in politics at all.  Those forces are mainly related to monetary policy more than anything, and monetary-policy decisions live outside the box of any political control.  Interest-rate policy (among other facets of money control) is controlled by a private banking institution – The Fed – and chaired by Ben Bernanke, who was there during Bush, was reinstalled by Obama, and will be reinstalled by whoever the new guy is.  Fed policy has never been rooted in politics and politicians have never had any control over the Fed, regardless of what side of the aisle they stand on.  For an example of how The Fed’s policies have affected the price of gold, take a look at a graph of gold following QE1 and QE2 (the Fed's “quantitative easing” programs).  The U.S. Treasury colludes with The Fed, yet the Treasury Secretary, Timothy Geithner (also in place during both Bush and Obama), has no political agenda based on party either.  These guys work for banking interests, not the people or the parties.

Regardless of which way you lean politically, the current political and financial systems should trouble you.  They trouble gold.  So from the perspective of debt, money printing and monetary policy, we are WAY past the point where a party change will have any meaningful effect on the outcome of many things.  While gold is ultimately the currency of central bankers – and thus why it follows the debt trajectory of the world's reserve currency – it also attaches itself to political and financial confidence erosion.  Remember what happened when the politicians in D.C. turned the debt-ceiling debate into a three-ring circus?  Gold went straight up by $300 an ounce in a couple of weeks.

So if we get a new president, will the political games end?  No.  Will our debt problem go away?  No.  Will we get growth all the sudden without all the “stimulus” spending and entitlements the Republicans say they want to end?  No.  Will the growth come even if Obama stays and keeps spending and the Fed keeps printing?  Not that I can see.  And most importantly, will The Fed be able to raise rates regardless of who wins, and will the debt trajectory change?  No and No.  We will be at $28 trillion in debt by 2018 according to expert deficit projections.  The Fed will keep printing money and rates will stay in the basement for as far as far the eye can see thanks to our massive debt and the need to service it.  The writing is on the wall.  This election will have zero impact on the current trajectory of the price of gold, and gold is moving much higher.  As financial instruments seem to be losing their “value-ism” or “money-ism” all around you – Greek banks, MF Global, etc. – it becomes critical for you to have some savings in real (unprintable) money that is free of counterparty-risk.  The political “show” between now and November, and its outcome, will not change this fundamental need.  Why would it?  Gold is math and mathematics is a science.  Politics is not.

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