Gold after the US presidential election. What to expect by the end of the year?

Gold has literally had a fairy tale year in 2024, successfully hitting all-time highs several times. Thus, the road to $3000 was beautifully paved. However, after the US presidential election, the fairy tale may be over. Why is the gold price now falling? And what will the rest of the year be like for this precious metal? Join us for a look at the price outlook for one of the most popular instruments among Purple Trading clients.

The price of gold rose for virtually the entire year 2024. Behind the positive sentiment on the yellow metal were the prospects of interest rate cuts in the US, which at times weakened the dollar and lowered bond yields. Moreover, gold was helped by high geopolitical tensions. The conflict in Ukraine still persisted and fighting in the Middle East continued during the year. Israel is fighting on several fronts - against Hamas, Hezbollah and the Houthis. Iran, which is known for its nuclear programme, has also been involved in the conflict on several occasions. Thus, unlike people in the Middle East, gold has had a great time.

Gold as the biggest loser of the US presidential election

Gold continued to rise strongly after the end of the summer, when the markets were already preparing for the event of the year - the US presidential election. Investors also used gold as a form of hedge against uncertainty. According to the media, the chances of both candidates were evenly balanced, so there was more than a threat of clashes between radical groups and possibly even civil war in the USA. Gold thus confirmed its reputation as a safe haven. Its price rose despite the significant strengthening of the US dollar and rising bond yields.

Both of these factors are more likely to work against gold prices. As commodities are denominated in the US dollar, the stronger the dollar, the greater the downward pressure on commodity prices. Moreover, gold itself does not yield any return. Bond yields can thus be seen as a risk-free way to value your finances. The moment an investor opts for gold, that bond yield is his opportunity cost. Thus, rising bond yields make them more attractive and gold the opposite.

_{10yr US bond yields, source: Investing}

Gold hit an all-time high of $2,800 just before the election. Immediately after the election, however, the price fell significantly. Gold is thus one of the biggest losers after the election. The election was not nearly as close as the media claimed. In the end, the Republicans with Donald Trump clearly won and controlled the Senate and probably the House of Representatives as well as the presidency. Half of the US may be unhappy, but the election went relatively smoothly and there is no danger of any riots. As expected, equities and cryptocurrencies started to do well very early on - so risk-on sentiment clearly prevailed in the market. Moreover, volatility is falling significantly. In recent days, there has been a clear rotation of investors from safe havens to risky assets. Here again, gold is suffering significantly, with its price already down $200 to $2,600.

Let's also not forget the Fed's actions

In the context of the gold price, we must also comment on the current Fed action. It is the Fed that has the power to significantly influence interest rates and thus the US dollar and bond yields. The Fed has already cut interest rates twice this year - the first time by 50bps and this month by 25bps. However, these moves have not had a longer term effect on the dollar or bonds. Market eyes are now on the last meeting of the year in December. The market currently expects a 25bp cut, but the odds are gradually slipping. From an initial 84% to 62% (13 Nov). Inflation and labour market data will be key. The Fed can easily afford to take a pause in rate cuts in December - this could push gold lower again.
 

_{December Fed meeting, source: CME}

Despite the rate cuts, however, the dollar and bond yields are holding at higher levels. This is again related to Donald Trump. His fiscally challenging policies could mean higher debt growth in the US as well as a higher supply of Treasuries, which is keeping yields higher. In addition, the expected tariffs could stir up inflation again, which is currently helping the US dollar. Thus, the nervousness about the election of Donald Trump is still evident in the market. Once it subsides, the dollar could start to weaken and bond yields could fall. This would support gold prices.

What will the rest of the year hold for gold?

The correction after the election is really massive, gold has already written off $200. Key support levels are now at $2600, $2550 and $2500. If they are broken, the gold price may fall below $2400. However, the 2600 support is holding the market for now and the key now may be a return to the $2660 resistance. If you trade gold by technical analysis, watching these levels is key.
 

_{Gold and key supports, source: MT4}

Fundamental analysis currently speaks more for further sell-offs, but data on the labour market and inflation in particular will be key. If inflation numbers are lower than expected and the labour market weaker, the Fed can afford to cut interest rates in a fairly aggressive manner. This could again knock down gold's biggest enemies - the dollar and bond yields. We must also not forget that Donald Trump can be quite erratic and his handling of geopolitical conflicts can only bring more chaos to the markets. In that case, gold would then experience a harvest again. Moreover, the Chinese central bank has not bought any gold for its reserves for half a year now. With lower prices, I could see this big player return to the market and change sentiment. The key support levels for traders now will be at $2600 and $2550. Thus, gold will certainly offer many opportunities for intraday and swing traders by the end of the year. Not for nothing is it and one of the most popular instruments in Purple Trading.