Gold prices plummeted over 2% on Monday as the U.S. dollar surged, reflecting investor sentiment following President-elect Donald Trump's victory in the 2024 election and the potential implications for Federal Reserve policy. Spot gold dropped 2.3% to $2,666.48 per ounce, while U.S. gold futures fell by 2.42% to $2,629.40. The strengthening dollar, which rose to its highest level since early July, made gold less attractive for international buyers, contributing to the sharp decline.
"Market attention has shifted to the second-order effects since the red wave," said Daniel Ghali, a commodity strategist at TD Securities, as reported by Reuters. Ghali noted that Trump's anticipated imposition of tariffs and the subsequent demand for a stronger dollar are weighing heavily on gold prices. The election outcome has also raised questions about potential changes in the Federal Reserve's policy direction, with market participants now pricing in a reduced likelihood of further rate cuts.
The decline in gold marks its worst performance in over five months, reflecting heightened market uncertainty following Trump's victory. The Fed's recent decision to lower the benchmark interest rate by a quarter of a percentage point to a range of 4.5% to 4.75% is now under renewed scrutiny. Traders see a 65% chance of another 25-basis-point rate cut in December, down from an 80% probability before the election. Upcoming speeches by Fed officials, including Chair Jerome Powell, and key economic data releases will be closely monitored.
Meanwhile, the cryptocurrency market showed a contrasting trend, with Bitcoin surging past $82,000, setting a new all-time high. "There's crypto fever right now," said Phillip Streible, Chief Market Strategist at Blue Line Futures. "Much of the sell-off in the silver and gold markets can be attributed to a rotation of funds into Bitcoin and other digital assets." Bitcoin's rally has been fueled by investor expectations that Trump's administration will adopt a more favorable regulatory stance on cryptocurrencies, contrasting with the current leadership at the Securities and Exchange Commission.
Silver also faced a challenging start to the week, falling 2.3% to $30.58 per ounce. Industrial metals, including platinum and palladium, experienced marginal gains after significant losses on Friday. Analysts at Heraeus noted that strong demand for N-type cells in the solar industry is likely to keep silver demand robust in 2024 despite the recent price dip.
The dollar's continued strength following Trump's election is a key driver of market movements. The dollar index, which measures the greenback against a basket of major currencies, has risen sharply, impacting commodities priced in dollars. Bruce Ikemizu, Chief Director of the Japan Bullion Market Association, highlighted that "gold's drop is due less to Trump's victory itself and more to the resolution of election uncertainty, which markets expected to drag on."
The broader impact of Trump's victory extends beyond gold. Equity markets rallied, with U.S. stocks hitting record highs. Investors are optimistic about the prospect of Trump's domestic growth policies and anticipated regulatory rollbacks. The S&P 500 and Dow Jones Industrial Average posted significant weekly gains, while the Nasdaq closed at a fresh record high. "Equities are eager to price in Trump's growth agenda," said a Barclays strategist.
Amid market volatility, traders are bracing for a busy week with key U.S. inflation data releases and more insights from the Fed. As Powell emphasized, the central bank will carefully evaluate how the incoming administration's policies affect its goals of stable inflation and maximum employment.
Gold prices in China, the world's largest consumer, edged up slightly on the Shanghai Gold Exchange, but remain under pressure. The country's economic slowdown and continued deflationary pressures further complicate the outlook for precious metals. In the near term, market strategists expect continued volatility as investors react to the evolving political and economic landscape.
