Market hangover following US election

As the week is coming to a close, we have seen that the financial markets have continued to factor in the expected trade and tariff policies of the future US government. US Treasuries’ yields rose sharply at the beginning of the week after a bank holiday, again in contrast to European government bond yields, which weakened. Higher yields on US bonds, considered safe by the markets, are likely to attract investors from abroad, which in turn will increase US dollar demand.

Strong US dollar

The US dollar rose sharply over the course of the week, reaching its highest level against the euro in 13 months yesterday. It is also on the rise against every other currency. As the leading US stock indices are also up significantly since last Wednesday, many investors sold off their gold positions this week, and we saw a further decline in long positions on the US futures exchanges. Taking all these factors into account, it is not surprising that the gold price continued to decline over the course of the week.

Last Thursday morning, the precious metal traded at 2,660 US$ per ounce. Its final push on Friday to 2,710 was apparently understood by some investors as a sell signal. From 2,685 at the end of the week, the precious metal dropped to 2,612 on Monday and then, in the wake of renewed US dollar strength yesterday, to 2,580 – its lowest level since mid-September. This morning, it kicked off European trading at an even lower 2,554 US$ per ounce.

Xetra-Gold: weaker euro softens the blow

Xetra-Gold also depreciated week on week, although the correction was at least somewhat cushioned by the devaluation of the euro against the US dollar. It initially climbed from 79.50 € per gram last Thursday morning to 80.80 on Friday and took a hit on Monday and Tuesday morning, to 78.40. Thereafter, the depreciation of the euro overcompensated for the drop in the US dollar gold price. Xetra-Gold therefore recovered to 79.15 € per gram but came under pressure at the end of trading yesterday and last night. It is expected to start the European trading today at around 77.90 € per gram at 8:00.

Outlook: recovery in the medium term

The formation of the new US government and the presumed effects on US tariff and trade policy are likely to continue their overwhelming influence on the markets in the coming days. While the pressure on the gold price could continue in the short term, there is potential for a recovery in the medium term, provided that the financial markets take a more positive view of the precious metal considering the possible inflationary dangers of future US economic policy and its effects on US national debt. In the long run, lower gold prices could boost jewellery demand and demand from central banks.

I wish all readers a successful end to the workweek and a relaxing weekend.