REPORT: Democrats Won Congress, and Gold Jumped 3% Off a One-Year Low. Here's the Gold Fund We'd Buy Now.
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Key Takeaways
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| By Al Qureiyeh Reviewed by: Leo Tavolaro |
If you gave up on gold this fall because it kept falling, Tuesday's election just handed you a second chance.
SPDR Gold Shares (GLD), a fund that holds gold, rose about 3% in Wednesday's trading after Democrats won Congress.
Source: Yahoo Finance; Associated Press.
The fund had lost more than a quarter of its value from its Jan. 29 high to Tuesday's close.
It closed Oct. 30 at its lowest level in a year.
The vote did not change the Federal Reserve (Fed), whose leaning toward rate hikes has weighed on gold all year. But history and the price both support buying here.
What Happened
Democrats won control of both the House and the Senate, according to the Associated Press, while President Trump keeps his veto.
An economist at UBS called fiscal gridlock, with few big new spending bills, the likely result.
The U.S. dollar index, which tracks the dollar against major currencies, fell about 0.5% in Wednesday morning's trading.
That put it on course for its biggest one-day drop since September.
Long-term Treasury yields barely moved; the 10-year yield gave back only part of Tuesday's rise.
Traders, as measured by the CME Group's FedWatch tool, put the chance of a December Fed rate hike at about 77% Wednesday.
The vote barely changed those odds.
So, markets sold the dollar on the result, but they did not change their view of the Fed.
Two readings fit the dollar's drop: gridlock, or fears that a Democratic Congress could slow the artificial intelligence (AI) data-center build-out.
Before Wednesday's open, trading pointed to smaller gains for technology stocks than for the broader market, which fits the second reading.
Part of gold's bounce came before the vote: the fund had already edged up from its Oct. 30 low by Tuesday's close.
Our scorecard is measured against the S&P 500, the index of America's largest companies.
If you bought Morgan Stanley (MS), Ross Stores (ROST) or Phillips 66 (PSX) on our advice, you are ahead of the S&P 500.
The same goes for Microsoft (MSFT).
If you skipped Zscaler (ZS) on our Oct. 30 advice, you avoided a drop of about 9%.
We are behind on Valero (VLO), our Oct. 14 pick, by about 12 percentage points.
We are also behind on Cisco (CSCO), our Oct. 30 pick, by about 3 percentage points.
And we trail on JPMorgan Chase (JPM), our Nov. 3 pick, by about 1 percentage point.
Why the Gold Skeptics Have a Point
Investors went into the vote fearful: CNN's Fear & Greed Index, a gauge of stock market mood, closed Tuesday in its "extreme fear" zone.
First, the Fed sets the cost of money, and the election does not change that.
Gold fell this year while the Fed leaned toward rate hikes, the dollar strengthened and Treasury yields after inflation rose.
Gold pays no interest, and it has tended to struggle when safe yields rise.
Second, gold has bounced several times this year, only to slide again.
Third, the fight over the government's borrowing limit, the debt ceiling, may not come until late 2027.
We grant these points. They are why our time frame is short and why we say exactly what would change our mind.
What Weiss Is Saying
Weiss rates SPDR Gold Shares B-, a BUY, with Reward rated C+ and Risk rated B.
The iShares Gold Trust (IAU) and SPDR Gold MiniShares (GLDM) hold the same metal and are also B-, a BUY.
Both charge a lower yearly fee, but we prefer SPDR Gold Shares, the largest of the three by assets.
Gold miners rate higher but carry more risk. Newmont (NEM) and Agnico Eagle (AEM) are each B, a BUY, with Risk rated C-.
The Nov. 2 Weiss piece titled "We Called It First. Now the Bill Comes Due After Tuesday" recommended buying SPDR Gold Shares.
We agree with that call.
We read the timing differently: our case rests on the price and on history, not on a debt-ceiling fight that may be a year away.
The Nov. 4 Weiss piece, "The Top 15 Moves the New Congress Will Attempt," says only a presidential veto can stop the new majority.
A Nov. 2 Weiss piece, "Exclusive Interview: Gold, Stocks & the Midterms at the New Orleans Investment Conference," expects swings around the vote.
It also says investors' best days are still ahead.
Related story: We Called It First. Now the Bill Comes Due After Tuesday.
Related story: The Top 15 Moves the New Congress Will Attempt
Gold Has Done Well After Midterms
The chart shows the fund's slide through October and its low on Oct. 30.
Gold fell about 11% in the weeks before this vote.
That was a steeper drop than before any of the four midterms ahead of it.
In our own back-tests, we tracked gold over the three months after each midterm since 2006.
Gold rose after all but one of them.
It beat the S&P 500 after each of the last three, in 2014, 2018 and 2022.
The big miss came in 2010, when stocks jumped and gold slipped.
Each of those periods had its own Fed story, and the record is evidence, not proof.
Buy Gold While It Sits Near Its Low
Buy SPDR Gold Shares (GLD), rated B-, a BUY, at the next close; it closed Tuesday at $359.26.
The fund holds gold bars, so it rises and falls with the metal, minus a yearly fee.
Gold often moves opposite the dollar, as it did Wednesday.
The fund closed Tuesday about 1% above its Oct. 30 low.
That puts it near the bottom of its one-year range, where a rebound has the most ground to recover.
What could work against it: a strong jobs report Friday that lifts December hike odds, which the vote left high.
Tuesday's close was about $29 below the fund's average close over the past 50 trading days. Even after Wednesday's jump, getting back to that average would be a gain of about 5%.
The fund pays no dividend, so you earn only what gold earns.
Our time frame is about three months, with the first checks at Friday's jobs report and the Fed's Dec. 9 decision.
What We're Watching
First, Friday's jobs report. If hiring comes in strong and the odds of a December hike climb, we would hold off on adding and tell you so.
Second, the Oct. 30 low. If the fund closes below $355.78, we would sell, and we will say so.
Third, the Fed's Dec. 9 decision. If the Fed hikes and signals more, we would reassess the fund and say so.
Fourth, Newmont (NEM), rated B, a BUY. If its next report shows costs at or below its guidance, we would look at buying the miner too.
Bottom Line
Tuesday's vote did not change the Fed, but it pushed the dollar lower and added to gold's bounce off a one-year low. After past midterms, gold usually gained in the months that followed.
So, if you gave up on gold this fall, Tuesday gave you a second chance. Buy SPDR Gold Shares (GLD), rated B-, a BUY, which closed Tuesday at $359.26, at the next close.
Take care,
AL Qureiyeh
