Political uncertainty and commodity prices

We study the effects of political uncertainty on commodity markets from both theoretical and empirical perspectives. Consistent with our theoretical predictions, commodity prices and inventories decline by 6.6% and 5.7%, respectively, and convenience yields increase by 1.9% in the quarter leading up to U.S. presidential elections, our proxy for political uncertainty on the demand side. Opposite results are obtained for political uncertainty on the supply side using national elections in major commodity-producing countries. We do not observe significant changes in risk premiums before elections. Furthermore, we show that gold is not an effective hedge against political uncertainty