By: Rania Gule
Gold continues its significant losses, trading below $2,670 on Monday under increasing pressure from rising U.S. bond yields amid economic optimism fueled by Donald Trump’s victory in the presidential election. Although gold is traditionally seen as a haven in uncertain times, expectations of Trump’s expansive policies strengthen the dollar, drawing investors away from precious metals. Under these circumstances, it seems likely that prices may continue to trade below $2,670, reflecting the pressures gold faces due to recent economic and political developments in the United States.
In my view, gold will remain influenced by the U.S. dollar’s recovery and decline as markets anticipate potential fiscal policy measures by Trump. Markets are looking toward large-scale government spending programs and tax reforms that may boost U.S. economic growth. This optimism drives investors towards U.S. assets, enhancing the dollar’s value, which weighs on gold, given its nature as a non-yielding asset. Consequently, the shift towards the dollar and bond yields comes at the expense of gold, leading to its decreased value.
Regarding U.S. bond yields, I believe their rise adds further pressure on gold prices, as higher yields attract investors away from non-yielding assets like gold. In my opinion, the substantial increase in Treasury yields indicates expectations for strong future economic growth, enhancing the dollar’s appeal and creating an unfavourable environment for gold price increases. I see this trend continuing in the short term, especially with expectations that the Federal Reserve will further ease monetary policy, raising yields and negatively impacting the yellow metal.
Amid these challenges, gold investors are counting on the upcoming U.S. inflation report and Federal Reserve statements to open a potential window of hope. Investors are watching inflation data, expecting the Consumer Price Index to provide signals on price stability and the Fed’s future stance on interest rates. If inflation data comes in weaker than expected, we might see some dollar weakness, which could relatively support gold. However, I believe that even if inflation data offers some temporary support for gold, the renewed economic optimism, U.S. growth, and rising yields will continue to exert significant pressure on gold prices.
Additionally, the Federal Reserve’s statements could play an important role in guiding the markets. The central bank’s latest statement reflected a cautious approach regarding future monetary policy. Despite the recent rate cut, the Fed avoided hinting at another potential cut in December, suggesting a balanced monetary policy and possibly a wait-and-see approach. The Fed’s balanced stance may support the dollar and keep gold under pressure, especially if positive economic expectations related to Trump’s policies persist.
Despite all these challenges, one cannot ignore certain tensions that might drive investors towards gold as a haven, particularly with concerns about potential trade policies Trump might adopt. For example, imposing a 10% tariff on U.S. imports could drive up inflation and increase import costs, encouraging investors to turn to gold to protect their investments amid possible trade tensions. In my view, this represents limited support for gold, as optimism for U.S. economic growth dominates the overall picture.
On the other hand, investors tend to avoid taking decisive positions before the release of key inflation data and Fed expectations this week, which could temporarily limit gold’s volatility. This caution reflects a wait-and-see approach in the market, with some expecting data and statements that might hint at or diminish chances of future easing. I believe this waiting stance will not significantly affect gold unless we see unexpected changes in Fed policies or in inflation data that exceed expectations.
Based on the above, I think gold prices will struggle to stabilize above $2,670 in the short term. While some factors may provide temporary support, the inclination of investors towards the dollar and rising U.S. yields limits gold’s ability to recover. All eyes will be focused on inflation data and Fed commentary as key indicators for gold’s future movement. However, amid optimism for a U.S. economic recovery, gold prices may continue downward unless geopolitical and economic tensions re-emerge to enhance its appeal as a haven.
Gule is Senior Market Analyst at XS.com
