The sell-off in the gold market has continued this week as the dollar surged after Republican Donald Trump’s victory in the 2024 US presidential elections.
Analysts, however, believe that the fall in gold is not just because of Trump’s victory.
Analysts at Heraeus noted that historically, Republican victories have not bode well for gold’s near term price targets.
Following Trump’s previous win in 2016, there was an 11.6% fall in gold prices, Heraeus analysts were quoted in a report by Kitco.com.
Slide in prices not just about Trump
Analysts at Heraeus also noted that Trump’s win was not the sole reason for gold’s current demise.
“Since 1976, election of a Republican administration has led to an average 4.5% decline in the price of gold within 60 days compared to an average 3.8% rise for a Democrat win,” Heraeus said in a report.
“Likely control of the House of Representatives and confirmed Republican control of the Senate increase the likelihood of conservative economic policy implementation and reduce uncertainty in geopolitical direction, but not the details.”
Though Trump’s radical policies are likely to weigh on gold prices as well.
The President-elect is expected to increase tariffs on all imported goods to the US, especially from China.
The increased tariffs are expected to not only spike domestic prices, but increase inflationary pressures in the economy.
In such a scenario, the US Federal Reserve would be compelled to slow its interest-rate cut cycle.
Elevated interest rates weigh on gold prices as the yellow metal does not fetch any interests unlike bonds.
Gold price performance around US elections
Gold prices had climbed sharply in the weeks leading up to the 2024 US presidential election on Nov 5.
Prices on COMEX had hit a series of fresh record highs, breaching the $2,700 per ounce and $2,800 per ounce for the first time ever before the election outcome.
Source: KitcoNews
The rally in prices was mostly because of political uncertainty in the market. The safe-haven appeal of the yellow metal increased sharply, fuelling the steep rise in prices.
Analysts at Heraeus said that the slowing of rate cuts by the US Fed, if it happens, could be beneficial for gold in the long-term.
“The Federal Reserve’s rate cutting path – which was restated on Thursday by the expected 25 basis points – may have to slow or change if inflation rises. This outcome would support safe-haven demand on a slightly longer-term outlook.”
However, post election, the dollar has surged, putting pressure on commodities. A stronger dollar makes commodities priced in the greenback more expensive for overseas buyers.
Meanwhile, Bitcoin’s rally on Monday also weighed on gold’s price.
Additions to solar capacity lifts silver demand
Silver is likely to remain in demand from the solar industry. The expanding solar capacity and a shift in technology are expected to increase the demand for the grey metal.
“Last week, the UK’s National Energy System Operator (NESO) called upon the UK government to have 47 GW of solar capacity in the UK by 2030,” analysts at Heraeus told Kitco.com.
“UK solar capacity reached 17 GW as July 2024 drew to a close (source: Department for Energy Security and Net Zero). Recorded capacity in July 2024 was 1.2 GW higher than in July 2023, so to meet the aspirations of NESO the UK must increase its annual rate of solar deployment by nearly four-fold.”
According to the analysts, growth in solar capacity additions in Germany has outstripped that in the UK. While, growth in China dwarfs both the above countries.
But, despite these medium- and long-term growth projections, silver prices have been subdued much like gold since last week.
‘Like the rest of the precious metals, the silver price dropped last week, falling back below $32/oz,” Heraeus said in a report.
By Friday’s close it had retraced comfortably below this key level to $31.27/oz.
Prices continued to fall on Tuesday as well. At the time of writing, prices on COMEX were down 0.6% at $30.435.
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