Gold prices slow after US election results

Following their spectacular rise over the past weeks, gold prices have adjusted to the current gloomy November weather. They fell significantly yesterday after the results of the US presidential election. This was somewhat counter-intuitive, as many analysts had predicted gold would rise further if Donald Trump were elected for his second term in office. The narrative: a projected subsequent period of uncertainty would ensure sustained demand for the yellow metal.

The reasons for yesterday’s strong headwinds for gold: 

• US government bond yields rose markedly: with an increase of 0.23 percentage points, yields on 30-year US Treasuries climbed more sharply than at any time since spring 2020, while their ten-year counterparts rose by more than 0.18 percentage points. Since gold does not pay interest, this rise in yields tends to have a negative impact on the gold price.
• The higher US yields, in turn, resulted in a strong appreciation of the US dollar. By yesterday afternoon, the euro had temporarily lost 2.1 per cent of its value against the US dollar. The last time it suffered a higher daily loss was in 2016.
• The election result itself, in terms of the new president and US Senate majorities, was determined more quickly than previously expected, with no counting mishaps, challenges, or the like. These potential uncertainties were therefore priced out in the markets yesterday.

The fact that gold saw a dip of more than 2.5 per cent yesterday came as a surprise to most market participants.

Gold price drops below 2,700 US$ per ounce mark

Last Thursday morning, gold traded close to its recent record high (2,790 US$ per ounce), at 2,785 US$ per ounce. By Thursday afternoon, it had dropped to 2,740, where it fluctuated – at least until yesterday morning – with a brief excursion to 2,760 immediately after the rather weak US labour market data last Friday. Following the announcement of the election results, gold slid below the 2,700 US$ per ounce mark, resulting in follow-up sales which drove the precious metal to 2,643.50 last night. It started European trading slightly recovered at around 2,660.

Weaker euro softens Xetra-Gold price loss

The price of Xetra-Gold was also down week on week, although the blow was softened by the depreciation of the euro against the US dollar. From 82.50 € per gram last Thursday morning, it had dropped to 81.30 by Friday. Xetra-Gold weakened significantly yesterday to 79.65 before rising again above the 80.00 € per gram mark at the close of trading. Due to last night’s moderate recovery of the euro, Xetra-Gold (as of 8 a.m.) is likely to start trading today at around 79.50 € per gram.

Outlook: the week ahead

The markets will be busy analysing and evaluating the outcome of the US elections in the coming days, which will likely lead to increased volatility. The Fed will meet this evening; a 0.25 percentage point interest rate cut is firmly priced in. Tomorrow, the Chinese government could announce measures to revive the economy, which should also have a market-moving effect – plenty to keep us on our toes. I wish all our readers a relaxing weekend.