Trump’s win cools gold fever but longer-term outlook remains bullish
Stronger greenback and bond yields, as well as increasing confidence in US equities and cryptocurrencies, are putting the commodity under pressure
DONALD Trump’s triumph in the US presidential election has wiped out phenomenal gains in gold prices over the past two months. But market watchers remain bullish over the longer-term outlook for the precious yellow metal.
Since the start of November – ahead of the election – gold prices have been on a downward trend, retreating from all-time highs.
Shortly after Trump claimed victory on Nov 6, however, spot gold prices fell to below US$2,700 per ounce.
This knee-jerk reaction to Trump 2.0 has continued, with spot gold prices tumbling further to US$2541.45 per ounce as at 5.30 pm on Thursday (Nov 15).
In contrast, the US dollar and bond yields have strengthened, alongside increasing confidence in US equities and cryptocurrencies.
On Nov 12, the S&P 500 overtook gold as the leading performer on year-to-date returns.
Investors believe Trump’s US exceptionalism policies bode well for domestic businesses, but could lead to a higher terminal rate at the end of the current Federal Reserve rate-cut cycle.
Market watchers, however, note that the fundamental price drivers for gold remain intact despite Trump’s return.
The negative reaction in gold prices – which is tied to a continued rise in the opportunity cost of holding the asset – is a “near-term phenomenon”, the World Gold Council said in a gold market commentary on Nov 12.
It added that reduced sanction risks, in light of a “less combative stance” by the incoming administration, also weighed on gold sentiment.
Nonetheless, the gold industry’s international trade association highlighted that more fundamental concerns – which have been driving gold prices upwards – remain. These include ongoing conflicts amid global protectionism, as well as over-concentrated equity markets.
There is also no ready replacement for gold as a “safe haven” asset.
Maybank’s foreign exchange market research and strategy team said in a report on Friday that it remains “constructive” on gold in the medium term, while the precious metal hovered around US$2,570 per ounce in the morning.
The team noted opportunities in the gold market amid cautious sentiment over China’s data and global late-cycle risks. “Gold remains one of the few preferred hedges against the scenario of a hard landing of the US economy,” it said.
Julia Khandoshko, chief executive officer of broker Mind Money, is confident that gold will reach new highs and possibly surpass US$3,000 per ounce next year.
“The current drop in gold is a correction, not a reason to revise forecasts,” she said.
She noted that the Federal Reserve’s standpoint and overall inflation expectations will likely remain stable despite volatilities brought on by Trump 2.0.
