Since US president-elect Donald Trump’s victory last week, stock markets have been in a frenzy. US stocks and cryptocurrencies like bitcoin have risen sharply, while gold has plummeted by 9% in just ten days. The so-called "Trump trade" has shifted investor focus toward riskier assets, reducing demand for safe-haven assets like gold.
The US dollar surged after the election; euro-dollar parity can no longer be ruled out. A stronger dollar makes gold more expensive for non-US buyers, reducing demand and pushing down prices. Investors also hope that Trump could negotiate peace between Ukraine and Russia, removing gold’s typical crisis-related risk premiums.
The US Federal Reserve has recently taken a more moderate tone, suggesting inflation is no longer a major problem and that key interest rates should return to neutral levels, neither hindering nor stimulating growth. However, the post-pandemic environment makes this neutral rate uncertain. Markets now anticipate a cautious Fed approach with small rate adjustments, signalling the rate-cut cycle may soon end, even though it has only recently begun.
Higher interest rates and a stronger dollar make gold less attractive since the yellow metal doesn’t generate ongoing income like interest or dividends. Growing optimism in the stock markets has also triggered outflows from gold ETFs, increasing selling pressure on the gold market.
China has not made notable gold purchases despite economic incentives, disappointing expectations and further pushing gold prices down. Chinese demand for the yellow metal has slowed, with Commerzbank’s commodity analyst Carsten Fritsch noting that China’s central bank hasn’t bought any gold for the last six months. Meanwhile, weaker inflation expectations have lessened the need for gold as an inflation hedge, and the restrictive combination of a strong dollar and rising interest rates keeps inflation pressures in check.
From a technical perspective, gold’s price correction appears neutral, with no new bottom formed but no signs of a sustainable trend reversal. The situation must be monitored over the coming weeks, but gold’s overall upward trend remains intact despite the recent 9% pullback.
Find your flow: four principles for trading in the zone
Learn about the four trading principles of preparation, psychology, strategy, and intuition, and gain key trading insights from some of the world's top investors.
Get this free report
