Gold prices fell for a fifth straight session on Thursday, falling below the $2,550 mark to a two-month low, as a surge in the dollar weighed on bullion even as U.S. inflation data supported the prospect of another interest rate cut by the Federal Reserve next month.
Gold prices have fallen in six of seven trading days since Trump's victory, which was expected to boost economic growth and corporate profits.
Gold is now down more than 8% from its Oct. 31 record high, with losses accelerating after Trump won the White House. Bullion is still up about 25% this year, supported by the Federal Reserve's monetary easing cycle, central bank purchases and safe-haven demand driven by heightened geopolitical and economic risks.
“The bull market in gold and silver is taking a pause, and this could last for a few weeks or so,” said Maximilian Layton, global head of commodities research at Citi.
He elaborated that gold prices could move lower as U.S. stocks rallied on the prospect of lower taxes and regulation. U.S. stocks hit record highs after Trump's return to the White House, though the rally has paused.
Conversely, the dollar index climbed to a one-year high, making dollar-denominated gold expensive for holders of other currencies. "The dollar's rise reflects how markets are pricing in Trump's inflationary policy agenda, which primarily consists of tax cuts and tariffs," Vivek Dhar of Commonwealth Bank of Australia wrote in a note on Wednesday.
Nicky Shiels, head of metals strategy at MKS Pamp, said U.S. stocks are currently in "optimistic territory" as the market digests a market-friendly election outcome. "Gold and silver will re-price into a less bullish trajectory before the honeymoon period of the Trump deal ends," she said.
The U.S. CPI data for October released on Wednesday showed an overall decline, in line with expectations, although the three-month core CPI annual rate rose. Overall, the data supports the possibility that the Federal Reserve may cut interest rates in mid-December, and swap traders expect this probability to be more than 80%. Lower borrowing costs tend to benefit gold, which does not pay interest.
However, despite the decline in gold prices, market observers remain optimistic about the fundamentals of the metal.
Layton said the fundamental drivers of the gold market remain in place. After Trump won the election, speculation grew about his tariff proposals and their potential impact on the global economy. "In this situation, people will buy gold and silver to hedge against these downside risks."
In addition, central bank demand for gold will remain strong, if not grow, due to the U.S. fiscal outlook and rising geopolitical tensions, according to financial services firm Canaccord Genuity. Central banks bought a record amount of gold in the first half of 2024.
“If President-elect Trump’s second term is as confrontational with friends and foes as his first, we believe strong international demand for gold as a reserve asset relative to demand for U.S. Treasuries is likely to persist,” the bank’s analysts wrote in a note.
Canaccord Genuity said factors such as rising debt, geopolitical tensions and central bank demand are expected to support higher gold prices.
Article forwarded from: Jinshi Data
