With Donald Trump claiming victory in the U.S. presidential election, markets are responding swiftly. Heightened expectations of tax cuts, tariffs, and inflationary pressures are propelling the U.S. dollar higher, subsequently weighing on gold prices.
Although traditionally seen as a safe-haven asset, gold has gained 32% this year amid economic and political uncertainties. However, it is now facing headwinds due to the election outcome and the upcoming Federal Reserve rate decision.
Impact of Fed rate cut on Gold’s short-term outlook
The Federal Reserve is expected to announce a 25-basis-point rate cut on Thursday, marking the second reduction this year.
Typically, rate cuts boost gold by reducing the opportunity cost of holding non-yielding assets.
However, with the market intensely focused on the election’s impact, the Fed’s decision may exert only a limited short-term influence.
Trump victory’s impact on Gold
A Trump victory is expected to weigh on gold due to expectations of a stronger dollar and rising bond yields. His policy stance, including tax cuts, tariffs, and reduced government spending, is likely to strengthen the dollar, diminishing gold’s appeal as a hedge against currency weakness.
Following Trump’s 2016 election, both the dollar and equities surged, while gold prices pulled back. A similar market reaction is anticipated if Trump’s policies intensify, with traders bracing for further fiscal stimulus and potential inflationary effects.
Deficit-spending concerns tied to Trump’s economic agenda and expectations for a less aggressive Fed are driving U.S. Treasury yields higher, further reducing gold’s appeal.
Rising yields make interest-bearing assets more attractive, pulling investors away from non-yielding gold. This, coupled with dollar strength, presents short-term challenges for gold.
Additionally, markets are seeing a noticeable ‘risk-on’ sentiment, adding further downward pressure on gold. For instance, U.S. equity futures have rallied strongly in response to early election results, suggesting a shift toward riskier assets and reduced demand for safe havens.
Notably, the dollar rose 1.5% to 154.38 yen, its highest since July. Bitcoin (BTC) also surged to a record $75,371, surpassing its previous peak of $73,797.
Despite these pressures, gold has performed impressively in 2024, with analysts predicting continued upside in 2025. Goldman Sachs forecasts a key target of $3,000, signaling a positive longer-term outlook for the metal despite recent volatility.
Technical analysis highlights Gold’s range-bound movement
The technical analysis paints a picture of cautious sentiment in the gold market, as noted by trading expert RLinda.
Currently, gold is trading within a defined range, with traders taking a watchful approach. RLinda pointed out converging Simple Moving Averages (SMAs), indicating a mix of sentiment as election-related anticipation builds.
Key support levels for gold are identified at $2,731, $2,724, and $2,713, with resistance levels set at $2,745 and $2,758.
A stronger dollar, potentially fueled by a Trump victory, could heighten selling pressure on gold; however, lingering post-election uncertainties may offer some support to prices.
Conclusion: A critical week for Gold’s direction
The U.S. presidential election and the Fed’s rate decision this week are likely to shape gold’s next major move.
With Trump’s victory potentially driving dollar strength and higher Treasury yields, gold may face downward pressure.
As markets navigate this high-stakes week, the interplay between election results and monetary policy will be crucial in determining gold’s near-term trajectory, with the potential for heightened volatility.
Source: https://finbold.com/how-the-us-election-and-fed-rate-decision-could-fuel-golds-next-move/