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Wolfgang Hagl
Editor
Gold reacts to US election night with slight losses – but the return of Donald Trump to the White House suggests that the precious metal rally will continue.
It is not known whether the Fed will take the election range into account when planning appointments. What is certain is that the US Federal Reserve is meeting today for a two-day meeting. The members of the FOMC are likely to keep an eye not only on the latest economic indicators, but also on the results of the presidential and congressional elections. Tomorrow, Thursday, the Fed will announce its interest rate decision at 8:00 p.m. our time.
The next president of the USA has already been more or less determined. Donald Trump will most likely return to the White House in 2025. Furthermore, his party appears to be taking control of the Senate while maintaining its majority in the House of Representatives. All of the voting cards are bathed in Republican red – Trump is celebrating a real “sweep” with his supporters.
Ignite “Trump Trades”.
There has been a lot of excitement on the capital markets since this surprisingly clear result emerged. In Japan, the Nikkei 225 index rose by 2.6%. Meanwhile, the Hang Seng in Hong Kong fell by 2%. The futures indicate a strong trading day for Wall Street. Bitcoin cost more than USD 75,000 for the first time this morning. A small wave of appreciation can be observed in the US dollar – at 105.13 points, the US dollar index is at its highest level since the middle of the year.
In the development outlined, various “Trump trades” come to light. In addition to the 78-year-old’s supposed enthusiasm for cryptocurrencies, the focus is primarily on his protectionist trade policy. If he returns to the White House, Trump has announced new tariffs on all imports into the USA. Chinese imports could face a burden of 60%.
Risk of inflation
A side effect of this “America First” doctrine is the risk of greater inflation. Economists believe that a price increase of more than 2% caused by the tariffs is possible. This new increase in inflation would come at a time when the USA is currently recovering from the inflation phase that followed the pandemic. In September, the central bank reacted to this and cut the key interest rate surprisingly significantly by 50 basis points to 4.75% to 5.00%. It is a foregone conclusion that the monetary authorities will follow up with a further reduction step of 25 basis points tomorrow.
Today’s developments on the bond markets do not really match these expectations. The yield on the 10-year US Treasury note rose more than 13 basis points to 4.42%. Which shows that with Trump, doubts about the Fed’s easing policy are returning. In keeping with this, the price of gold has come under pressure the more the red “sweep” has materialized. In early London trading, the troy ounce fell to USD 2,701.
Fed under pressure
It would be interesting to know how those responsible at the Fed view the historic election night. Jerome Powell could provide answers tomorrow evening. After presenting the interest rate decision, the Fed President appears before the press. The CME FedWatch Tool is currently signaling a further rate cut of 25 basis points for the December meeting. However, the rate for such a step shrank overnight by almost 10 percentage points to 69.8%. The possible shift in monetary policy projections is therefore already underway.
Even if the Fed abandons its chosen interest rate path, the gold rally does not have to be over. Shortly before the ballot, JP Morgan described the precious metal as the clearest “election hedge” in the raw materials spectrum. “A Republican sweep could boost the rally,” the analysts write. Investors would turn to gold due to the great uncertainty regarding inflation. As a further argument, JP Morgan cites the high US government deficit, which is likely to continue to rise under a Trump administration. Not to mention geopolitics. From Ukraine to the Middle East to the Taiwan question: The USA is facing a change of course that is fraught with many uncertainties.
Investment solutions
Investors who still have a blank spot in their portfolio when it comes to gold can simply brush it over with the help of the ZKB ETF ZGLD. This fund is one of the largest of its kind. In the CHF share class alone, Zürcher Kantonalbank manages almost CHF 5 billion. The management fee is 0.40%.
The Mini Future Long MGOBZV enables a more short-term trading position. With this paper you can bet that gold will turn higher tomorrow after the weak start this morning. The troy ounce has already caught up to around USD 30 compared to the daily low outlined. The Vontobel derivative shows a leverage of 4.9. At USD 2,222.60, the stop loss is a good 18% below the gold price. The Mini Future was in demand on US election day. The bullish paper reached a trading volume of more than CHF 200,000 on the SIX yesterday
