Trump’s victory immediately boosted markets from U.S. stocks to Bitcoin. However, it may take longer for gold to recover.
Gold’s performance in the two days following Trump’s victory was its worst of at least 13 U.S. presidential election windows, according to Deutsche Bank. Prices have fallen nearly 7% since Election Day.
“When people really get interested in gold is when everything else is not working,” said Rob Haworth, senior director of investment strategy at Bank of America. He added: “U.S. stocks are doing well. You’re even seeing solid returns in lower-quality corporate credit. So you’re less likely to look for other sources of portfolio growth.”
Gold's decline is a marked reversal from a trend that surged more than 30% over the past year, when geopolitical and economic risks attracted a large number of investors and pushed gold prices to record highs. While longer-term uncertainty remains, especially given the unpredictable stance Trump has taken at times, gold's safe-haven outlook has been buoyed as the best-case scenario for gold - a contested election - fails to materialize. The appeal is significantly diminished.
A stronger dollar in the days following Trump’s victory was also a negative factor for dollar-denominated gold. At the same time, the U.S. economy appeared to be in good shape, inflation was slowing and the Federal Reserve was in no rush to continue its aggressive rate cuts.
“Gold would be a contrarian choice right now with the rest of the U.S. economy looking very strong,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management. “The sentiment right now is that there is very little risk, both fundamentally and geopolitically. It’s not easy to be contrarian in this environment.”
Some investors may not agree entirely with Trump's policies, but simply knowing what to expect during a Trump 2.0 term helps eliminate some of the recent uncertainty that has helped drive gold to new highs.
Confirmation of a Republican landslide victory also means more room to implement the policies he promoted during the campaign. Trump's agenda, from tax cuts to financial deregulation to tariffs, has prompted hedge funds to pile into sectors that could benefit, including large banks and U.S. industrial stocks.
“We have more attractive places to deploy capital,” said Jay Hatfield, chief executive of Infrastructure Capital Advisors, citing opportunities in financials and other riskier assets.
“Who wants to miss out on a 10% gain at Goldman?” he said.
Cryptocurrencies have also surged since Election Day on expectations that Trump's policies will boost digital assets. Total assets in the iShares Bitcoin Trust ETF and BlackRock's Spot Bitcoin ETF topped $40 billion for the first time last week. The surge coincided with large outflows from SPDR Gold Shares, the world's largest physically-backed gold ETF.
"Trump's victory means we're likely to see less regulation of cryptocurrencies," said Kristina Hooper, chief global market strategist at Invesco Advisors. "That should attract at least some of the money from gold to cryptocurrencies."
However, in the long run, gold still has room to rise. Trump's tough promises on taxes and tariffs may eventually lead to higher deficits and inflation, which may trigger a return of buying for gold as an inflation hedge.
If a second Trump term disrupts global trade and geopolitics, it could also prompt central banks to continue buying gold to hedge risks in the dollar reserve system.
“Many reserve managers in countries that are ‘friendly’ and ‘neutral’ to the U.S. may be concerned about a more unpredictable U.S. foreign policy and the impact that could have on the security of their reserves,” said Rajeev De Mello, global macro portfolio manager at Gama Asset Management SA.
“The current sell-off is more of a buy-the-dip story, as gold has moved into a more affordable range after the sharp decline since the U.S. election,” he added.
Article forwarded from: Jinshi Data
