US Election 2024: Gold Price Falls As Donald Trump Wins; Is More Downside Ahead?

Gold prices fell on Wednesday with the presidential election victory of Donald Trump, whose poll planks hint at a strengthening of the US dollar and firming up of the yields on Treasury bonds.

Spot gold, which was edging lower since the results of the US election emerged, plunged 3.1% to hit a low of $2,658.35 at 9:50 a.m. (EST).

The US gold futures also fell by 3.2% to reach a low of $2,661.7 on the Comex after the Wall Street opened.

On India's Multi Commodity Exchange, gold futures were trading 2.5% lower at Rs 76,505 per 10 gram at 8:30 p.m. (IST). In the retail market, 24-karat gold slipped 0.6% to Rs 78,106 per 10 gram, according to the India Bullion and Jewellers Association.

“A victory for Donald Trump in the US presidential election has led to a spike in the US dollar, and that is having a negative impact on gold prices. Prices are volatile as the street awaits the Fed outcome on Thursday, another key event guiding gold prices," said Colin Shah, managing director of Kama Jewelry.

Late on Tuesday, the dollar rose to its highest since July as early results pointed towards Trump's return to the White House. The Bloomberg Dollar Spot Index rallied by more than 1%.

Among the key election promises of Trump was the imposition of blanket tariffs in the range of 10–20% on all imports and up to 60% on imports from economic rival China.

The curbs on imports will strengthen the dollar, which has an inverse relationship with gold, i.e., the metal's price generally slides when the dollar climbs.

The trade tariffs will also increase inflationary pressures as the prices of imported goods will increase, analysts said. The pressures are compounded by Trump's plan of slashing taxes and deporting illegal immigrants, which would reduce the availability of cheap labour.

An uptick in inflation may compel the US Federal Reserve to slow down or even pause the pace of interest rate cuts, said Nitin Aggarwal, director of investment research and advisory at Client Associates. This does not augur well for gold, as the metal's recent bull run was driven by anticipation of aggressive rate cuts by the Fed.

Although gold is seen as a key hedge against inflation, higher lending rates reduce the appeal of the non-yielding bullion.

Gold also shares an inverse relationship with US bond yields. Similar to the dollar, the yield on the 10-year Treasury also soared to its highest level since July after the early set of election results emerged. It climbed 0.16 basis points to 4.44%.

"A Trump presidency, coupled with potential Republican control of the US Congress, could shoot higher yields due to anticipated increases in deficit spending, inflation risks, and potential tax cuts," said Shrisha Acharya, vice president, Anand Rathi Global Finance. According to the precedent, gold rates decelerate in case the Treasury yields gain pace.

Gold prices are expected to ease after the US elections, as the market will absorb the reduced uncertainty. However, the dip is "likely to be temporary and may not lead to a sustained downturn," said Anindya Banerjee, senior vice president at Kotak Securities Ltd.

The fears of a downside in gold prices are driven by the period following Trump's first election win in November 2016. In the 30-day period following Trump's victory, the spot gold price had dropped by $112, or 9%, to $1,169 an ounce.

According to analysts, a 2016 comparison may not be entirely relevant. "Back then, markets were largely unprepared for a Trump presidency, which led to a sharp downturn in emerging markets and commodities like gold and silver. However, after observing his first term, markets are now better adjusted," Banerjee said.

"As a result, we may not see a repeat of the post-2016 election surge in the dollar index, bond yields, and US equities. That said, with recent rallies in the dollar and US yields, the potential for further significant gains in gold may be limited," he added.

In the near term, gold and silver prices may continue to edge lower as "we might see some profit-taking," according to Banerjee. The prices could stabilise within a range, potentially bottoming out before a resurgence as the dollar index nears its peak, he said.

According to Shah, gold is expected to trade in a narrow range or sideways till Trump outlines his key policies. "In the long term, i.e., above 12 months, we expect gold to regain past high levels and make new highs," he added.

Irrespective of the technical indicators, the gold price can move either way as the metal moves more on "sentiments and less on fundamentals," said Kranthi Bathini, director of equity strategy at WealthMills Securities Pvt.

Despite the near-term risks, gold prices will remain elevated in the medium term due to geopolitical factors, Bathini said. "The biggest factor to influence gold rates is the escalating tensions between Iran and Israel in the Middle East."

Shah also added that global headwinds will keep gold in demand. "In the long term, gold prices will touch $3,000 in the global market and Rs 86,000 in the domestic markets," he noted.