Gold steadies after three percent decline on Trump victory
- Gold finds a floor on Thursday after experiencing a 3.0% fall on Wednesday following the news of Donald Trump’s victory in the presidential race.
- A stronger US Dollar, capital pivoting into riskier assets, and potential unwinding of geopolitical risks were all bearish drivers.
- Technically, XAU/USD extends its short-term downtrend although the RSI momentum indicator is oversold.
Gold (XAU/USD) steadies in the $2,660s on Thursday after falling three percent on the previous day when now President-elect Donald Trump had secured a victory in the US presidential election.
Gold falls 3.0% as Donald Trump wins election
Gold's steep decline on Wednesday was partly a result of the US Dollar (USD) strengthening due to Trump’s Dollar-positive economic agenda and preference for pro-tariff protectionism. Since Gold is mainly priced and traded in USD, the stronger Dollar had an immediate negative impact on its price.
Trump won the presidency by passing the 270 electoral votes threshold. On Thursday, Trump has 295 votes to Harris’ 226, according to the Associated Press. The Republican party also has a majority in the United States (US) Senate – 52 over 44 – and is in the lead to win a majority in the US Congress, with 206 seats versus the Democrat’s 191 so far, although 38 have still to be called.
The precious metal may have been further hit by investors’ preference for alternative, riskier assets, such as Bitcoin (BTC), which hit a new all-time high due to expectations that Trump would relax crypto regulation. Stocks also rose to record heights due to anticipated tax cuts and a looser regulatory environment overall. These all came at the cost of Gold, which saw outflows as investors rebalanced portfolios.
Gold also rises during geopolitical crises and wars from increased safe-haven demand. Trump’s claims that he can end the conflicts in the Middle East and Ukraine, though seemingly exaggerated (“I will have that (Ukraine-Russia) war settled in one day – 24hrs,” Trump said once), however, probably also hit safe-haven flows.
Technical Analysis: XAU/USD enters short-term downtrend
Gold shatters the glass of $2,700 and falls to the mid $2,650s on Thursday. The precious metal is now in a short-term downtrend and, given the principle that “the trend is your friend,” it is vulnerable to further weakness in the near term.
XAU/USD 4-hour Chart
That said, the Relative Strength Index (RSI) momentum indicator has entered deep into oversold territory, indicating short-holders should not add to their positions. If the RSI exits oversold, sellers are advised to close their trades and open tentative longs, as it will be a signal that the price will probably correct higher.
Due to the bearish short-term trend, a break below the $2,643 daily low would confirm a continuation, probably to the next downside target at $2,605, the trendline for the long-term trend.
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 the moment, however, there are no technical signs of this happening.
A break above the all-time high of $2,790 would re-confirm the medium-term uptrend and probably lead to a move up to resistance at $2,800 (whole number and psychological number), followed by $2,850.
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.
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