Following Donald Trump’s election victory, the gold price took a significant hit, dropping over 3% to reach $2,650 per troy ounce. Analysts at Commerzbank, including Carsten Fritsch, have provided insights into the reasons behind this sudden decline, connecting it to broader market factors and projecting what might be expected in the near future.
Influence of Trump’s Policies on Inflation and Gold Demand
With Trump’s economic policies likely to increase inflation, market reactions were swift. Gold had reached a record high the week prior, but in the days following Trump’s win, it fell by approximately $140. According to Fritsch, two primary forces drove this decline: a sharply stronger U.S. dollar and a sudden rise in U.S. bond yields. Although gold prices had remained resilient against these factors previously, the substantial jump in the dollar’s value and bond yields led to a noticeable drop in gold demand.
Gold’s Vulnerability to Recent Market Trends
Gold price had been seeing steady gains in recent weeks, with prices rising rapidly despite little change in interest rate expectations. This upward trend left gold vulnerable to any strong shift in the market. Many investors saw the post-election period as an ideal time to cash out their positions, leading to notable outflows from gold-backed ETFs in the following days.
Commerzbank’s Positive Outlook for Gold Prices
Despite the recent downturn, Commerzbank analysts believe that the price slump is likely temporary. By the day after the election, gold had already rebounded slightly to over $2,700 per troy ounce. The Federal Reserve’s recent interest rate cut by 25 basis points, along with the possibility of further rate cuts, continues to make gold an attractive investment. Moreover, Trump’s inflationary policies are likely to keep gold in demand as a reliable hedge against inflation risks.
Commerzbank’s analysis suggests that gold’s role as a protective asset in uncertain economic times will likely support its demand and price stability going forward.
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