Gold Prices Plummet as Dollar Strengthens and Risk-On Sentiment Takes Hold
The value of gold has taken a significant hit, dropping nearly 7% since the US presidential election last week. As of Thursday, spot prices of the precious metal had fallen to $2,559.2 per ounce, with gold futures on the New York Mercantile exchange trading at $2,567.3.
A Pause in the Bull Market
According to Citi’s global head of commodities research, Maximilian Layton, this decline marks a temporary pause in the bull market for gold and silver. Layton attributes this shift to the prospect of lower taxes and regulations under the new administration, which has led to a rally in US equities.
Dollar Strength and Cryptocurrency Surge
The strengthening dollar, which has reached a one-year high, has made gold more expensive for holders of other currencies. Meanwhile, cryptocurrencies like bitcoin have seen a surge in value, briefly breaking the $93,000 mark on Wednesday. This shift in investor sentiment is largely attributed to Trump’s promises to the industry.
Equities in “Euphoria Territory”
Nicky Shiels, head of metals strategy at MKS Pamp, notes that equities are currently in “euphoria territory” as they price in market-friendly outcomes of the election. Until this “Trump trade honeymoon phase” runs its course, gold and silver are likely to continue their downward trend.
Fundamentals Still Strong
Despite the current slump, market watchers remain optimistic about the fundamentals of the gold market. The underlying drivers of the gold market, including increasing speculation about Trump’s tariff proposals and their potential impact on the global economy, are still in place. Central bank demand for gold is also expected to remain strong, driven by the US fiscal outlook and growing geopolitical tensions.
Supporting Factors for Higher Gold Prices
A combination of rising debt, geopolitical tensions, and central bank demand are expected to support higher gold prices in the long run. As the global economy navigates these challenges, investors are likely to turn to gold as a safe-haven asset, driving up demand and prices.
Leave a Reply