Gold is one of the casualties of the ‘red wave’ sweep in the US, with Trump winning the hotly contested presidential elections. The precious metal has plunged to two-month lows below the $2600 an ounce level after initially showing signs of powering through the $3,000 level. The dollar’s strengthening to one-year highs following Trump’s win has been the main catalyst for the weakness of gold in the market.
Gold Trump Slump
Gold has declined in six of the seven trading sessions since Trump beat Kamala Harris for the highly coveted seat. Citi’s global head of commodities, Maximillian Layton, believes the slide experienced in gold and silver will likely persist.
Gold prices are likely to continue edging lower on US equities, rallying amid the prospects of lower taxes and regulations. Trump’s big win has sent equities to record highs, fuelling demand for risk assets in the market.
Amid the slump in gold prices, some analysts are optimistic that the Bull Run will resume shortly, owing to its solid underlying fundamentals. The prospect of the US Federal Reserve cutting interest rates further supports the case for higher gold prices. US inflation has dropped significantly, supporting the prospect of the Fed cutting further, which could fuel dollar weakness and consequently trigger higher gold prices.
With Trump in office, the prospects of tariffs are likely to rattle the global economies, consequently triggering tensions, which should fuel demand for safe havens. Geopolitical tensions in the Middle East are still rife due to Israel’s invasion of Lebanon with the threat of Iran retaliating. The risk of geopolitics escalating should continue to fuel demand for gold as a safe haven amid the uncertainties.
Gold Price Driver
Financial services company Canaccord Genuity also predicts that the U.S. fiscal outlook and rising geopolitical tensions will keep central banks’ demand for gold strong, if not increase it. In the first half of 2024, central banks bought gold in record quantities.
Strong global demand for gold as a reserve asset will likely persist in relation to the demand for treasuries if President-elect Trump’s second term is anything like his first, which was marked by a combative approach toward friends and foes.
Central banks have been on a buying spree owing to the 40 tons of gold purchased in September, an increase of 8 tons from August. Total central bank gold reserves have increased by 48 tons, much higher than the 8 tons sold.
Representatives of three central banks told the London Bullion Market Association’s annual conference in Miami that they are still eager to purchase gold to diversify their reserves for strategic or financial reasons.
Central Bank Repurchases
Central banks’ strong demand for gold supported the price of the non-yielding metal during the high global interest rate period of 2022–2023, but this year’s 28% spot gold price increase caused it to slow down. In September, China’s central bank refrained from purchasing gold for the fifth consecutive month. Although they each have their reasons, representatives of the Czech Republic, Mongolia, and Mexico central banks told the conference that having gold in reserves is still important to them despite the gold rally.
Central banks have increased their gold reserves by a net 694 tons so far this year. The pace is in line with 2022 levels but slower than the record set through the first three quarters of 2023. The average monthly increase in central banks’ gold holdings over the past 12 months has been 26 tons.
