Following a Republican Party sweep in the American election, gold is contending with headwinds fueled by a stronger US dollar and shifts in investor sentiment, according to recent World Gold Council commentary.
The election results have ignited expectations of pro-business policies and tax-friendly approaches under the new administration, sparking significant changes in the dollar and 10 year Treasury yields.
The dollar gained ground after Donald Trump's victory was announced, with Treasury yields increasing in tandem.
This activity has made non-yielding assets like gold less attractive, raising the opportunity cost of holding the metal. Many investors are reevaluating their positions, impacting demand for gold as a safe-haven asset.
ETF and COMEX data shows shift away from gold
The World Gold Council notes that the US election's impact is visible in global gold exchange-traded fund (ETF) activity. These vehicles shed an estimated US$809 million in the first week of November.
Much of this selling pressure came from North American investors, who are now reallocating funds in anticipation of more favorable yields in bonds and other assets. Although Asian demand for gold remains relatively strong, the regional divergence underscores how the political shift in the US is affecting North American sentiment.
COMEX data reflects similar trends. Managed money positions in gold saw a net decrease of approximately 74 metric tons in the first week of November, marking an 8 percent drop from the prior week.
This decline suggests that many investors unwound hedges they had set up before the election.
The World Gold Council suggests that recalibrated risk expectations have led some investors to look toward the bond and equity markets, which are anticipated to benefit under the new administration.
Stocks, cryptocurrencies benefiting from Trump win
While the election has shifted attention away from gold, it has bolstered interest in other assets.
The broader US stock market, especially the technology sector, has rallied on expectations of business-friendly policies, such as tax reforms and infrastructure spending, that could spur corporate growth.
With these equities positioned for potential gains, some investors are reallocating capital from gold to stocks.
Bitcoin, too, has benefited from Trump's win. His administration’s anticipated stance on cryptocurrencies appears favorable, attracting investors who see digital assets as an effective hedge against inflation.
This growing interest in cryptocurrencies, alongside equity gains, has drawn investment away from gold, which traditionally gains investor priority during periods of economic uncertainty.
Inflationary Trump policies could boost gold
While gold is currently under pressure, many market watchers believe its long-term outlook remains bright.
Experts have pointed to the impending combination of lower taxes, tariffs and high government spending as factors that may fuel inflation over time. Gold has historically been seen as a hedge against inflation, and if inflation rates rise as a result of these policies, it may regain appeal among investors looking to preserve purchasing power.
The World Gold Council also expects the US deficit to grow if spending increases under the incoming administration, potentially weighing on the creditworthiness of Treasuries. This could also increase the appeal of gold as a safer alternative, especially for international central banks that hold gold as part of their reserve assets.
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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.
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