On Wednesday in the U.S. trading session, as Republican candidate Trump won the U.S. presidential election, gold prices continued to fall, falling nearly 3% during the day, the biggest drop since June 7 this year.
The dollar hit a four-month high, making gold more expensive for buyers of other currencies as traders bet higher tariffs under Trump could keep interest rates higher for longer.
Trump won 277 electoral votes to Harris' 224, according to the Associated Press. The dollar is strengthening as the market believes that Trump's economic agenda and tariff policies will strengthen the greenback. This, in turn, is not good for gold prices, as gold prices are mainly denominated and traded in dollars.
Gold prices also fell as capital flowed from gold and other safe-haven assets to riskier assets such as Bitcoin and stocks.
Trump's claims that he could end conflicts in the Middle East and Ukraine, although seemingly overblown, may also have reduced safe-haven inflows into gold.
Gold investors are also turning their attention to the next Federal Reserve policy meeting for clues on the pace of interest rate cuts. The prospect of several rate cuts has supported gold's stunning rally so far this year.
“Gold prices face the risk of higher inflation as tariffs are rolled out, which could slow the pace of rate cuts by the Federal Reserve, and continued demand for safe-haven assets,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Gold is seen as a safe haven against inflation, but higher interest rates reduce the appeal of non-yielding bullion.
Gold has performed well in recent years under both Republican and Democratic administrations - spot gold rose 54% during Trump's first term and has risen about 50% so far in Biden's term.
"Looking ahead, the big question for the gold market is how Trump is different now than he was eight years ago when he won the election," said Carsten Menke, an analyst at UBS Group AG.
The market generally expects the Federal Reserve to announce a 25 basis point rate cut this week after reducing interest rates by 50 basis points in September.
"The Fed will probably still cut rates, but the subsequent statement will be carefully examined for signs of a pause," Hansen added.
Article forwarded from: Jinshi Data