Gold price falls to two-month low following US election as “Trump trade” takes effect

The price of gold is falling just weeks after reaching a record high, as investors factor in a stronger US dollar.

The price of gold has been a victim to the Trump trade, as renewed optimism for share markets and the US dollar has resulted in the price of gold slumping.

Just three weeks after reaching a record high and just a week after the US election, the price of gold has slumped to a two month low.

Spot gold fell to just over $US2600 an ounce and has now fallen 7 per cent since its peak back on October 30, where it was trading at $US2801 per ounce.

According to Dow Jones Market Data, the price also marked their largest dollar and percentage drop since June 17, 2021.

The fall in the precious commodity comes as gold sometimes moves opposite to the US dollar because the metal is dollar-denominated.

Generally, the rise in the US dollar makes gold more expensive for non-US consumers and investors such as Australia as the Aussie dollar buys less of the precious metal, although the assets aren’t always inverted.

With President-elect taking office, he is expected to bring in inflationary policies including tax cuts for corporates and workers, as well as tariffs on imports to the US.

Dubbed the “Trump trade”, this big spending policy that Mr Trump ran on is resulting in the U.S. dollar rise to a 6-month high against major peers as higher tariffs are expected to give the Federal Reserve less scope to cut interest rates.

Vivek Dhar, Commonwealth Bank’s director of mining and energy commodities research, said markets were no longer looking for the safe haven demand as the US election uncertainty had passed.

The price of gold falls off the back of renewed optimism with Donald Trump winning the lection. Picture: Thinkstock

“The fall in gold futures, particularly after Trump’s election win on 5 November, can be best explained by the increase in the US dollar,” he said

“The rise in the US dollar reflects how markets have priced in Trump’s inflationary policy agenda, which primarily includes tax cuts and tariffs.”

According to FedWatch, the market is still factoring in a 58.7 per cent chance of a rate cut in December.

But over the long-term markets are expecting fewer rate cuts to come from the Federal Reserve over the next year.

“The last three times the Fed cut interest rates, gold rallied on average 100 per cent from the beginning of the rate cut cycle to gold’s new record all-time high”, Moomoo’s market analyst Jessica Amir said.

Mr Dhar said the clear risk though is that the US dollar weakens less than predicted, thereby justifying a lower gold price by year‑end.

“Our forecast for gold futures to average $US2800/oz in Q4 2024 is now clearly under threat,” Mr Dhar said.

“Our bullish outlook for gold futures this quarter was underpinned by gold’s ability to find support in any environment this year, but particularly when the US dollar weakens.”