Gold Price To Recover From Post US Election Slump If Fed Cuts Rate? Here's What Analysts Say

Gold price, sliding sharply following Donald Trump's victory in the US presidential election, could start recovering if the US Federal Reserve announces a rate cut on Thursday, analysts said.

Spot gold has shed more than $100 an ounce since the polling day, as its value plunged from a high of $2,750.01 on Nov. 5 to a low of $2,643.47 an ounce on Nov. 7.

The global slump in prices reflected on India's Multi Commodity Exchange as well, where gold futures for December delivery have slipped from a high of Rs 79,181 per 10 gram on Nov. 5 to a low of Rs 76,340 per 10 gram.

"Gold prices have recently dipped to a three-week low, finding support around the crucial trendline level of Rs 76,300. There are early indications of a potential reversal from this level," said Riyank Arora, technical analyst at Mehta Equities Ltd.

Should the Federal Reserve announce a 25 basis points rate cut, "it may boost gold prices," pushing them towards Rs 77,500 per 10 gram and possibly Rs 78,000 per 10 gram on the MCX, the analyst said.

"However, a daily close below Rs 76,000 would signal a bearish shift and could lead to further declines. For now, as long as prices hold above Rs 76,000, the outlook remains cautiously positive," Mehta noted.

The retreat in gold prices globally has been driven by the strengthening of US dollar and bond yields following Trump's decisive victory in the presidential poll. Historically, dollar and bond yields share an inverse relationship with gold, i.e., an increase in the two metrics leads to a fall in the yellow metal's price.

With the US election concluding without any uncertainty over the winner, the commodities market will shift its immediate focus on the Fed, analysts said. The American monetary body is scheduled to announce its decision on benchmark lending rates at 2:00 p.m. EST (12:30 a.m. IST).

A lowering of the interest rate signals an increase of liquidity into the economy, which in turn leads to the demand for gold. The metal had rallied sharply after the Fed announced a 50 basis points rate cut in September—first since the onset of Covid-19 pandemic.

The Fed, while initiating the rate cut cycle two months ago, signalled that inflation has significantly been brought under control, which would allow them to cut rates more frequently in the future.

However, Trump's win may compel the Fed to take a more cautionary approach, as his policies such as trade tariffs and tax cuts could lead to inflationary pressures.

"Currently, gold is stabilising around the $2,670 mark as investors evaluate the broader implications of Trump's economic agenda, which includes higher tariffs, an expanded fiscal deficit, and tax cuts. These factors could prompt the Federal Reserve to adopt a more cautious approach to future monetary policy," said Anindya Banerjee, senior vice president and head of commodity and currency at Kotak Securities Ltd.

Despite this possibility of the Fed recalibrating its approach after Trump takes control of the White House, the monetary authority is expected to announce a 25 basis points rate cut on Thursday. According to the CME Group's FedWatch Tool, the expectation of a quarter percentage point rate cut stood at 99.3%.

"A 25 basis point rate cut expected tonight, along with the possibility of fiscal stimulus from China, could offer some support to gold prices," Banerjee said.