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Gold prices suffered their worst weekly decline in more than three years after Donald Trump’s US election victory and a stronger dollar reversed bullion’s historic rally.
After jumping more than 35 percent this year to a series of record highs, bullion prices have fallen 7 percent this month to $2,561 a troy ounce, including a 3.1 percent drop the day after the election.
Trump’s decisive victory has reset market expectations as investors consider the impact of the president-elect’s potential policies. Traders have weighed in on low U.S. interest rates and boosted the dollar, fearing that potential tax cuts and tariffs could lead to higher inflation.
Gold, as a non-yielding asset, benefits from lower rates, while a stronger dollar, which carries the value of bullion, also typically weighs on the metal’s price.
Investors pulled $600 million from gold-backed exchange-traded funds in the week ended Nov. 8, the biggest weekly outflow since May, according to data from the World Gold Council.
Analysts say some of the decline was due to speculative money jumping into gold’s rally to the next trend.
“In bitcoin and Tesla, Trump trades, and that’s attracting money from certain safe havens like gold,” said Nicky Shiels, head of research at gold refiner MKS Pamp. “It’s not a bullish trend reversal, gold went up too fast, and now it’s going back down sharply.”
A foregone conclusion, in which Republicans have a “clean sweep” of Congress, has also changed sentiment. According to Rhona O’Connell, head of market analysis at broker StoneX, gold prices have fallen in the 12-week period following nine of the last 12 US elections.
“An election outcome, unless it’s really foregone, takes the risk element out of the markets,” he said.
But analysts also cautioned that the rising dollar is likely to dampen demand from central banks, whose massive purchases have also fueled the rally.
Central banks have bought 694 tonnes of gold this year, according to data from the World Gold Council, diversifying their holdings away from the US dollar.
George Saravelos, head of FX research at Deutsche Bank, said Trump’s policies are likely to weaken emerging market currencies such as the Chinese renminbi.
“Many central banks now need to spend dollar reserves to defend their FX. [foreign exchange] Preventing capital outflows and excessive dilution,” he said.
Despite this month’s selloff, some strategists believe the rally will resume, with O’Connell expecting prices to reach $3,000 a troy ounce next year.
Gold’s rally over the past year has been fueled by conflicts in the Middle East and Ukraine and expectations of further rate cuts.
Pointing to war and geopolitical risk, Tom Price, analyst at Panmure Liberum, said, “This week’s adjustment has reset gold for now, but the themes that drove gold to this level are are still in place.” All that hasn’t changed since Trump was elected.
