Gold is starting to panic with Trump’s victory, its owners are heartbroken this week

Jakarta, CNBC Indonesia – World gold prices moved lower amid a rise in the United States (US) dollar and expectations of a more cautious monetary policy from the US central bank, The Federal Reserve (The Fed). Gold prices are expected to be volatile this week due to the mid-week US inflation announcement.

In trading on Friday (8/11/2024), the spot gold price on the international market fell 0.8% to US$2,684.03 per troy ounce, while the price of US gold futures closed 0.4% lower at $2,694.80 per ounce.

At the beginning of this week, Monday (11/11/2024) at 06.33 WIB, global gold prices were still down 0.03% at US$2,682.99 per troy ounce.

In addition, it is believed that Donald Trump’s victory will help to increase US inflation as he is very focused on improving the domestic economy. The US will announce inflation data on Wednesday (13/11/2024).

The strengthening of the US dollar and US Treasury yields had a negative impact on gold. Gold purchases are converted into dollars so that an increase in the US dollar makes gold more expensive to buy, thus reducing purchases.

Gold even recorded a weekly decline of 1.8% last week, becoming the biggest weekly decline in the past five months. The increase in the US dollar was also a major factor, where the US dollar index (DXY) strengthened 0.6% during the week. This has a negative impact on gold, which tends to be less attractive to investors when the US dollar strengthens.

Reporting from Reuters Gold was also weighed down by the results of the US election which saw the victory of Donald Trump. The certainty of this effect creates a sense of risk in the market, so that investors move from precious metals to riskier assets, such as stocks and domestic industrial sectors that are expected to benefit from growth policies before -the Trump economy. On the other hand, safe assets such as gold are starting to receive less attention.

Venu Krishna, Head of Strategy at Barclays, said this sentiment creates optimism regarding deregulation policies and tax cuts that are expected to support the business sector.

Additionally, the Federal Reserve’s decision to cut interest rates by 25 basis points on Thursday (7/11/2024) is also in the spotlight. Even if the Fed cut interest rates, Chairman Jerome Powell stressed that the approach going forward will be more cautious and “data-driven.” Therefore, investors expect the next rate cut could happen later this year, with about an 80% chance according to CME’s FedWatch Tool.

As a non-yielding asset, gold prices are sensitive to changes in interest rates, which reduces the chances of profit from investing in gold if interest rates are cut. However, Allegiance Gold’s Alex Ebkarian said that steady US inflation and expectations of the Fed’s easing monetary policy support the attractiveness of gold as an inflation hedge.

Physical demand for gold in several Asian countries is also likely to weaken. In India, for example, high gold prices hit the physical gold market during the festive season, while gold demand in Japan and Singapore showed a slight increase. This reflects a shift in the preferences of investors who are currently choosing more investment opportunities in assets that are considered more stable amid global uncertainty.

Looking ahead, investors’ attention will turn to US economic data, such as the Producer Price Index (PPI), which is expected to provide more insight into the Federal Reserve’s monetary policy direction. If data shows a higher-than-expected increase in inflation, the chance of a rate cut could fade, possibly putting pressure on gold prices.

With the possibility that inflation will remain high, analysts project that gold will still have a chance to strengthen again. Furthermore, in high inflation situations, gold is traditionally seen as a strong hedge asset. However, some analysts warn that the current strengthening of the US dollar may continue to put pressure on gold prices in the short term.

So far, according to Exinity Group Chief Market Analyst, Han Tan, Gold prices are expected to remain above the psychological level of US$2,700, but with high volatility.

CNBC Indonesia Research

(emb/emb)