The victory of Donald Trump in the US presidential elections has not been well-received by the bullion as the prices of gold, on MCX, have fallen by Rs 4,750/10 grams or 6% since November 4, the day of the election verdict.
Historically, a rising Dollar has pressured gold prices, a trend evident post-election as Trump’s victory has also positively impacted the Dollar Index (DXY), which measures the U.S. Dollar’s value against a basket of major foreign currencies.
The DXY has surged to its highest level since June 2024, with the index crossing the 106 mark today.
Trump’s previous policies have often favoured American interests, such as supporting domestic oil production through pro-drilling policies, imposing higher tariffs and sanctions on China, and enforcing strict immigration laws.
These policies are expected to boost the U.S. economy, potentially strengthening the dollar in the long term.
Why the pressure?
Other than Trump’s victory, the yellow metal is also being affected by a few other factors, which are listed below:
- ‘Buy the rumour, sell the fact’ trade: Gold rallied hard in the run-up to the US election as investors were concerned about the election outcome uncertainties like candidates challenging the results, close and bitter long-drawn-out contests, the US fiscal deficit swelling further, further rise in the US debt/GDP ratio, geopolitical issues and healthy ETF inflows. Investors booked profit as the election results were quick and decisive.
- US fiscal deficit concerns: Issues like the US fiscal deficit concerns and worries over elevated US debt/GDP ratio continue to linger, however, investors are now in a wait-and-watch mode ahead of Trump’s inauguration on January 20.
- Competition with Bitcoin: Investors are shunning gold to pile into Bitcoin on expectations of Bitcoin endorsement by the US Administration. Bitcoin rallied nearly 30% to a fresh record high above $89K in the wake of the US elections.
- Investment in risk assets for more growth: The investors rotating out of gold into risk assets on growth prospects. That’s why ETF holdings are witnessing an outflow currently.
- Geopolitical relief: There is a possibility of a contained geopolitical scenario, at least for a while, with Trump as the president.
- Dollar and yield surge: The US Dollar and yields surging on Trump’s growth agenda, the possibility of widening US fiscal deficit on increase in borrowings.
Also read: Bitcoin briefly tops $93,000 on Trump agenda, Fed policy outlook
Is the pressure likely to prevail?
Analysts say that there is no definite answer to this, however, a point of reference can be drawn from 2016, when Donald Trump won the election.
“The yellow metal tumbled nearly 17% following his victory speech. At that time the US and the global economies were doing well, and the Fed was preparing for a rate hike, which it eventually did in December 2016,” notes Praveen Singh, Senior Fundamental Research Analyst- Currencies and Commodities at Sharekhan.
This time the scenario is different. The global economy continues to face challenges with China’s economy remaining still weak and the US job market is worsening as manufacturing is mired in contraction.
The Fed and other key central banks are also cutting rates.
“We estimate that this time, the decline in gold prices could be roughly half of the decline in 2016. As Gold was at $2750 when the election results started coming in, we surmise that the metal may decline to $2500 or so,” Singh added.
What is the outlook for the precious metal?
Analysts believe that gold, despite a recent slump in price, is one of the best investment opportunities given the overall investment choices. It has just recently witnessed pressure from a stronger dollar index, reduced geopolitical tensions, and a slower pace of interest rate cuts.
“The downside for gold appears limited, given the optimism in US equity markets from Trump’s re-election; as well as the correction in Indian equity markets. Given the volatility in equities, investments in alternate asset classes like gold and silver, are more likely to give consistent performance,” believes Pranay Aggarwal, CEO, Stoxkart – a discount broker.
Analysts view and strategy on gold
“The metal is likely to correct further lower in the short term; however, the medium to long term prospects are bullish on elevated debt/GDP ratio, disconcerting fiscal deficit, de-dollarisation, geopolitics, gold buying by central banks, etc. The metal is likely to rise to $3000 sometime next year,” said Praveen Singh of Sharekhan.
He suggests investors accumulate the metal in a staggered manner, as the metal may correct lower and can look for a good upside in a year.
Meanwhile, Aamir Makda, Commodity & Currency Analyst at Choice Broking sees immediate support for gold at the weekly SAR (Stop and Reverse) level of Rs 72,623 and a breach of the same will likely accelerate a downside momentum in gold towards its next support at Rs 70,280.
On the upside, key resistance levels are stated at Rs 76,970 and Rs 77,824.
“In the short term, investors and traders should consider a sell-on-rise strategy for gold. With the Dollar Index nearing multiple resistance breakout levels, this presents a short opportunity in Gold. However, this fall in Gold prices could also create a buying opportunity from key support levels for a long-term position,” Makda added.
“Technically, we see support around $2,575-$2,600 per ounce internationally and near Rs 74,000 on MCX. As December approaches, market expectations for a potential 25 bps rate cut from the Fed could prompt fresh buying interest in gold, strengthening its upward momentum,” said Pranay Aggarwal of Stoxkart.
Aggarwal stated that gold is a viable investment option within the Rs 73,500–74,500 range on MCX, as the long-term outlook for gold remains robust.
This range provides a strategic entry point, particularly with supportive factors like potential Fed rate cuts and continued economic uncertainty bolstering gold’s appeal as a safe-haven asset.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)