Gold Sees Biggest Weekly Dip in More Than 5 Months

A worker polishes gold bullion bars at the ABC Refinery in Sydney on Aug. 5, 2020. David Gray/AFP via Getty Images

Gold prices saw a steep decline last week amid the election of a new American president, a strengthening dollar, and the U.S. Federal Reserve’s interest rate cuts.

Gold prices last week fell by 1.86 percent, from around $2,734 to $2,683, the largest weekly decline since late May. On Wednesday, former President Donald Trump was elected for the second time to the White House. During his campaign, Trump touted several pro-business policies, including cutting corporate taxes to 15 percent and appointing a “manufacturing ambassador” to attract businesses back to the United States in a bid to revive domestic industries.

With the Trump win, equities and the U.S. dollar rallied while gold, broadly considered a safe-haven investment, fell. On Nov. 5, the benchmark S&P 500 Index closed at 5,722, which then jumped 3.61 percent, to close at 5,929 on Nov. 6. The market rallied in the subsequent days as well. The S&P 500 rose by 4.71 percent last week compared to the yellow metal’s 1.86 percent decline.

On Nov. 7, the Fed announced a 25 basis-point reduction in its benchmark interest rates. Gold and interest rates usually have an inverse relationship. When rates drop, the bullion tends to rise, and vice versa.

Gold prices surged on Thursday following the Fed announcement. However, much of the gains were lost in the subsequent trading days.

On Nov. 11, spot gold was trading down at around the $2,673 level, as of 5:20 a.m. EST.

In a Nov. 7 report, ING bank said that the Trump win poses both an upside and downside risk to gold prices.

“Trump’s proposed policies, including tariffs and stricter immigration controls, which are inflationary in nature, could limit interest rate cuts from the Fed. A stronger dollar and tighter monetary policy could provide headwinds to gold and industrial metals,” it said.

“Tariffs also provide a downside risk to global growth, which would be negative for industrial metals demand. However, for gold, increased trade friction could add to the precious metal’s haven appeal.”

Gold Performance

According to the World Gold Council (WGC), gold has been one of the best-performing assets this year. The metal is up by more than 25 percent so far this year. Gold exchange-traded funds (ETFs) in North America saw a fourth consecutive month of inflows last month, adding $2.7 billion in October.

“Continued gold ETF buying may have come as a surprise to many as yields rose and the dollar strengthened, leaving investors re-thinking the future interest rate path amid robust U.S. economic performance,” the WGC said.

“Demand for gold was helped by uncertainty surrounding the U.S. presidential election. And the military escalation in the Middle East conflict, along with rumors that North Korea could join the Russian front against Ukraine, may have contributed to rising gold ETF demand.”

Geneva-based IG Bank expects prices to be above the $2,800 level by year-end. For next year, gold is expected to trade at around $3,000 for multiple months since it is a psychological level for many investors.

The central bank’s purchase of physical gold could continue until this threshold is reached, it noted. If the price breaks above $3,000, the bullion may well hit a target of $3,113. In the case that the bull market is strong and upside levels are surpassed, $4,000 could potentially become a new target, the bank said.

According to a Nov. 7 X post by market commentary service The Kobeissi Letter, the metal could currently be setting itself up for another price surge.

“Since 1971, there have been seven bull markets in gold with a medium length of 199 weeks and an average return of 250 percent. The longest one lasted for 445 weeks, and gold prices rallied 294 percent during this time. The shortest bull market lasted for 33 weeks, with gold prices rising 65 percent,” it said.

“On the other hand, the best return was seen in the 1970s, at 701 percent, when the bull market lasted for 177 weeks. Currently, the bull market has lasted for 105 weeks and returned 64 percent thus far, which is well below average. History suggests gold has more room to run.”