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Is gold losing its shine after glittering in a strong rally to multiple new records this year?
The yellow metal is down over 8% from its all-time high. The change in trend for gold prices is only about two weeks old.
However, it poses the question of whether the bull market is over.
The conclusive and swift US election result alleviated significant political uncertainty in the globe's largest economy, dampening interest in the widely favoured safe-haven asset.
Gold traded close to a two-month low as the dollar held near two-year highs. A stronger dollar weighs on commodities, making them expensive for traders buying with other currencies.
The 'Trump Trade' bets have boosted the dollar and, as a result, completely sidelined gold. What's not helping is the Federal Reserve chair's comments on rate-cut restraint last week.
Ashrith Rao
Jerome Powell highlighted the resilience of the US economy and said the Fed is not in a hurry to cut rates. For no-interest-yielding gold, higher rates are a bane.
Donald Trump's victory instantly lifted various markets, including stocks and Bitcoin. The recovery of gold is likely to be a prolonged process.
Deutsche Bank reported that in the two days after the Republican candidate's victory, the precious metal's performance was the weakest observed in at least 13 US presidential election cycles.
Gold prices have significantly declined nearly since Election Day, while various other asset classes are experiencing a surge following the campaign.
The yellow metal has fallen about $230 since hitting a record high of $2,802 earlier in the month.
The latest moves reflect traders' bets on the impact of Trump 2.0, including tax cuts, global trade tariffs, and deregulation. All those policies point to dollar strength from a boost to the US economy on Trump's 'America First' agenda.
Since gold's lows of $1,600 an ounce over two years ago, the yellow metal has been in a bull run driven by geopolitical tension. Flight-to-safety bets resulted in the blistering rally of the precious metal.
The recent decline in gold prices represents a significant shift for a commodity that experienced a remarkable increase of over 30% in the year before the US election.
Gold consistently reached new highs as investors were attracted by geopolitical and economic uncertainties. The strengthening dollar following Trump's re-election poses a challenge for bullion, given that it is denominated in US currency. The US economy is performing well, as inflation is subsiding, and the Fed is not hastily moving to further reduce interest rates.
While some investors might not align with the President-elect's platform, the clarity regarding expectations for Trump 2.0 has alleviated some of the recent uncertainty, contributing to the rise of the precious metal to new highs.
The affirmation of a Republican clean sweep indicates increased flexibility to implement the policies he signalled during the campaign.
Trump's initiatives, which encompass tax reductions, financial deregulation, and tariffs, have led to an influx of hedge fund investments in sectors poised for advantage, particularly large-cap banks and domestic industrials.
Gold, as a result, fell, reversing a two-year rally.
On the other hand, since Election Day, there has been a notable increase in cryptocurrencies, driven by anticipations that Trump's policies will enhance the value of digital assets.
This past week marked a significant milestone: the total assets of the iShares Bitcoin Trust ETF, associated with BlackRock Inc.'s spot-Bitcoin ETF, exceeded $40 billion for the first time.
The increase aligned with a significant outflow from SPDR Gold Shares, the largest physically-backed gold ETF globally.
Nonetheless, gold could potentially experience further upward movement in the long term.
Trump's firm commitments regarding taxes and tariffs are expected to lead to increased deficits and inflation over time, potentially prompting a resurgence in gold purchases as a safeguard against inflation.
A second term for Trump could disrupt global trade and geopolitics, which might encourage central banks in countries like China and Russia to persist in their gold purchases as a strategy to diversify from the dollar-reserve system.
And analysts say no bull market moves in a straight line.
Gold is predicted to go lower before things stabilise, followed by a continuation of the bull market.
The reason: the big picture for gold in the long run has not changed.
Central banks and major investors will continue buying yellow metal in troves. Government debt will continue to grow faster than GDP, pushing investors to shelter in safe-haven assets like gold.
Interest payments on the debt are rising fast, and the dollar has been weaponised in geopolitical responses. All of that shifts the attraction of gold up relative to dollars. And none of that is likely to change soon.
While short-term traders are using leverage to cash in some of their gold chips, the allure of the precious metal remains at play in the long run.
Elsewhere
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Blockcast
This week's Blockcast features Independent Reserve CEO Lasanka Perera, who reflects on his journey of volatility, difficulties, uncertainty, and ultimately, success.
Perera, who's also an avid golf fan, discusses how and why Independent Reserve sponsored accomplished Singaporean golfer Shannon Tan, and how the exchange is helping young people invest in crypto.
Additionally, as a seasoned crypto investor who's seen countless bull and bear markets, Perera shares his immediate reactions to the market's recent pump post-US election.
Previous episodes of Blockcast can be found on Podpage, with guests like Peter Hui (Moongate), Luca Prosperi (M^0), Charles Hoskinson (Cardano), Aneirin Flynn (Failsafe), and Yat Siu (Animoca Brands) on our most recent shows.
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