- Gold weakens as a result of a stronger US Dollar and the impact of Trump on Monday.
- President-elect Donald Trump’s Dollar positive policies and competition from Bitcoin are factors pressuring Gold.
- Rumors Trump has offered known protectionist Robert Lighthizer the job of chief of trade is also weighing.
Gold (XAU/USD) in fall continues to fall, trading in the $2,620s – over $50 down from last week’s close. A stronger US Dollar (USD) is mainly to blame, with the trade-weighted US Dollar Index (DXY) up almost half a percent so far on the day. Perceptions that President-elect Donald Trump’s economic policies will be positive for the Greenback are the main driver. Since Gold is mainly priced and traded in USD, a stronger Dollar causes its price to fall.
Trump’s love of what he described as “the most beautiful word in the dictionary” (tariff) is expected to increase the prices of goods and inflation. Whilst this alone is not US Dollar positive, it will make the US Federal Reserve (Fed) slow down the rate at which it cuts interest rates. Relatively elevated interest rates attract greater foreign capital inflows, which is, in turn, positive for USD. Trump’s penchant for lower taxes is also likely to stoke inflation further, compounding the effect.
Gold rattled by Lighthizer rumor
Gold may be further pressured by rumors that Trump has offered the job of US Trade Representative to Washington attorney Robert Lighthizer, a known protectionist hawk. Lighthizer held the same role during Trump’s 2016 – 2020 administration and is known for advocating a tough protectionist stance – especially regarding China. The story of his appointment first broke in the Financial Times (FT) on Friday, and although it was later contradicted by a Reuters’ article claiming one of their sources had said it was “untrue”, rumors persist.
With a Republican in the White House, a majority in the US Senate, and the Republicans edging closer to winning a majority in the US Congress, the ability of Trump to push through his radical economic agenda and tax cuts seems assured. The Republican party has so far won 214 seats in Congress to the Democratic party’s 203, with only 18 outstanding, according to the Associated Press. The threshold for a majority is 218.
Competition from alternative assets such as Bitcoin (BTC) is also likely bearish for Gold. BTC hit a new all-time high on Monday, above $82,000, due to expectations that Trump will relax crypto regulation. Stocks could also seem attractive initially if Trump brings down corporation tax and loosens regulation. Gold is likely to suffer as a consequence of portfolio managers pivoting into these riskier assets.
The perception that Trump will be able to bring an end to the Ukraine-Russia war, which he boasted he could settle “in one day – 24 hours,” may also be reducing safe-haven flows into Gold.
Technical Analysis: XAU/USD resumes short-term bear trend
Gold starts falling again after temporarily recovering during its November sell-off. The precious metal is in a short-term downtrend, which, given it is a principle of technical analysis that “the trend is your friend,” is likely to extend.
XAU/USD Daily Chart
Gold has broken below the $2,643 November 7 low, confirming a bearish continuation, probably to the next target at the trendline for the long-term uptrend at $2,605.
Gold price is not oversold according to the Relative Strength Index (RSI), so more downside is possible.
The precious metal remains in an uptrend on a medium and long-term basis, with a material risk of a reversal higher in line with these broader up cycles at some point in time.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
