Gold’s Outlook Post-Trump Victory: Will Prices Dwindle?
In the wake of the recent U.S. elections and Donald Trump’s re-election, the commodities market—specifically gold and silver—has faced considerable challenges. The optimism surrounding Trump’s policies ignited a wave of investment into high-risk assets such as cryptocurrencies and tech stocks, causing precious metals to move temporarily off the investment radar. Nicky Shiels, Head of Research & Metals Strategy at MKS PAMP, provides keen insights into the dynamics of this market shift, suggesting that precious metals might not find their footing until the current euphoria surrounding Trump’s policies tapers off.
A Snapshot of Market Response
One week post-election, Shiels noted a notable surge in “animal spirits,” with the S&P 500 Index (SPX) flirting with $6,000, Bitcoin nearing $100,000, and the U.S. dollar gaining nearly 2%—a scenario reminiscent of the post-2016 market environment following Trump’s initial victory. Shiels observed that while U.S. equities have shown a robust rally, gold’s response has been lethargic, marking a 5% week-on-week decline. This mirrors the previous cycle where gold faced similar headwinds after Trump’s election, indicating that the precious metal is likely to continue to experience selling pressure.
Stage Set for Lower Gold Prices
Shiels’ analysis indicates that gold might find itself headed for the $2,500 per ounce mark, influenced by a plethora of tactical headwinds. The recent tranquility in geopolitical tensions, particularly concerning Russia and Ukraine, has alleviated risk premiums traditionally buoying gold’s value. This shift, coupled with the Federal Reserve’s potential hawkish stance on interest rates, is pivotal in shaping gold’s trajectory.
To draw parallels with the prior election cycle, Shiels pointed out that after Trump’s first election, gold plummeted approximately 12%. Current sentiment suggests that gold could be targeting lower levels closer to $2,420 per ounce, which aligns with historical trends but may still represent an exaggeration under current market conditions. It’s noteworthy that other commodities, including silver and platinum, have exhibited similar patterns, with silver projected around $28.50 and platinum dipped below $900.
Expectations for 2024 and Beyond
Looking ahead, Shiels posits that the next substantial shift in gold prices could potentially see a $500 upward movement rather than a downward trajectory. While the short-term outlook remains bearish, Shiels advises that long-term holders or those currently sidelined should maintain their positions. The rationale being that despite anticipated near-term dips of $50 or even $100, the longer-term view favors a recovery back to $2,500 per ounce, contingent on a broader macroeconomic recovery.
Challenges in the Broader Economic Landscape
Trump’s policies are causing a recalibration among global markets, particularly affecting Europe, which is already facing economic constraints. This dynamic pressures the European Central Bank to reconsider its monetary strategies in light of the potential repercussions of U.S. tariffs and the shifting investment landscape toward defense spending.
Moreover, Federal Reserve actions are currently under scrutiny, as expectations suggest fewer cuts to interest rates, indicating a market that may need to recalibrate its bullish sentiment associated with past inflationary pressures. Shiels emphasized that the current environment lacks the viability for gold and silver to gain traction, noting that until the fervor surrounding Trump stabilizes, the price adjustments for precious metals will likely follow a downward trajectory.
Conclusion
Investors should exercise caution in a market currently buoyed by optimism surrounding Trump-era policies. As historical parallels suggest, gold’s recent downtrend could continue unless there’s significant adverse news or market corrections. A combination of geopolitical stability, monetary policy shifts, and changing investor psychology will largely dictate gold’s price action in the near future. For serious investors, understanding these complexities is essential in navigating the volatility inherent in the commodities space.
In summary, while gold may soon find itself vying for lower price points amidst the current market exuberance, the long-term outlook remains cautiously optimistic. Engaging with gold and silver strategically will require diligence, as the underlying economic fundamentals continue to evolve.
