Gold prices under pressure by Trump policy expectations

Gold prices dipped to $2,540 per ounce in early trading on Thursday before paring some of the day’s losses, rising back to $2,560 per ounce. If gold prices rise, they may encounter resistance at $2,710 per ounce, while if gold prices decline, support may be encountered near $2,500 per ounce. 

Uncertainty over the US presidential elections propelled gold prices to an all-time high of 2,700 per ounce earlier this month. Gold prices had been moving in overbought territory, however, and collapsed after the announcement of Donald Trump’s victory in the US Presidential elections last week. 

Republicans secured full control of the US Government on Thursday, allowing Trump’s administration to pass laws more easily. After winning the US Presidency last week and the majority in the US Senate earlier this week, Republicans won control over the House of Representatives on Thursday. 

The implications of the Republicans’ victory are putting pressure on gold prices, which have registered a 7.0% decline so far in November. Trump’s proposed tariffs and tax policies are expected to support economic growth, boosting the dollar and putting pressure on gold prices.

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar continued to rise on Thursday, and the index surged from 106.5 to 107.0, its highest value since October 2022. US treasury yields on the other hand declined, with the US 10-year bond yield dropping from 4.46% to 4.40%.

The US Federal Reserve cut interest rates by 25 basis points last week to a target range of 4.50% to 4.75%. The Fed had already launched its easing cycle in September, with an aggressive 50-bp rate cut, signaling the end of its restrictive monetary policy. 

US inflation is proving to be sticky despite the Federal Reserve’s efforts to bring it down to its 2.0% target. Headline inflation rose to 2.6% year-on-year in October from 2.4% in September. The dollar surged after the release of the US inflation report on Wednesday, dragging gold prices down.

Gold prices are supported by expectations of further Fed rate cuts. The Fed’s statement after the meeting was slightly dovish, expressing confidence that US inflation would gradually drop to the central bank’s 2% target. Fed Chair Jerome Powell stated that the progress of disinflation is steady, and the labor market is strong, allowing for a shift towards a more neutral monetary policy. Odds of another rate cut in December shot up to 90% after the release of the US inflation report on Wednesday but dropped back to 75% on Thursday.

Geopolitical tensions raise the appeal of safe-haven assets propping up gold prices. The crisis in the Middle East had been boosting demand for safe-haven assets, keeping gold prices high. The conflict in the Middle East, however, has been raging for over a year and markets are starting to ignore this risk, lowering the appeal of safe-haven assets. In addition, reports that Trump has urged Russian President Vladimir Putin to deescalate tensions in Ukraine put pressure on gold prices this week.

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Written by:
Myrsini Giannouli

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