Precious metals have experienced notable price declines following Donald Trump's reelection, with commodities down 0.7% and bonds also falling by 0.7%. In contrast, global equities rose by 0.4%, and Bitcoin saw a remarkable surge of 47.3% in the month after the election. Analysts at WisdomTree have pointed out that while inflation expectations and potential tax cuts could provide support for gold, the immediate impact of Trump's policies remains uncertain. [94bf0912]
As of December 2, 2024, gold is trading 12.2% above its 200-day moving average, indicating a strong technical picture despite the recent declines. However, gold prices are falling unexpectedly, attributed to a strengthening dollar and rising U.S. interest rates post-election. The metal experienced its largest weekly drop in three years in mid-November 2024, as inflation concerns have diminished, reducing gold's appeal as an inflation hedge. [b92b632f]
In a significant development, gold's weighting in the Bloomberg Commodity Index (BCOM) is set to decrease to 14.29% in 2025 from 17.53% in 2024, marking the largest absolute percentage change among the 24 commodities in the index. This decline represents the third consecutive year of reduced weighting for gold, despite a nearly 30% price rally in 2024. Jim Wiederhold, Commodity Indices Product Manager at Bloomberg, noted that trading volumes have not sufficiently increased to offset previous declines. Currently, gold represents about 2% of global portfolios, while Société Générale recommends a 5% to 10% allocation. Central bank purchases have driven prices to record highs in early 2024. [d40f5133]
Silver, however, has seen a more significant drop due to its industrial applications, with prices declining more sharply than gold. Platinum and palladium prices also fell after initial gains, reflecting the broader volatility in the precious metals market. [94bf0912]
In the context of these market shifts, gold prices had previously surged significantly, reaching over $2,250 an ounce, marking a 38% increase from its last low point in 2022. This rise was driven by a growing trend among investors to seek safe-haven assets amidst global instability. However, the recent warnings from Trump regarding 100% tariffs on alternative currencies have contributed to a more cautious market sentiment. [76507f2b]
Upcoming U.S. economic data releases, including job openings, private wage growth, and the unemployment rate, are expected to influence market dynamics further. Federal Reserve officials, including Chair Jerome Powell, are scheduled to speak, which could provide additional insights into monetary policy and its implications for gold prices. [8cc7c9b2]
Geopolitical tensions, particularly from the ongoing Russia-Ukraine conflict, continue to support demand for gold as a safe-haven asset. Meanwhile, the appeal of gold has been somewhat moderated following a ceasefire between Israel and Hezbollah. [8cc7c9b2]
Incrementum AG's annual In Gold We Trust report has recommended that investors hold 25% of their portfolio in gold, citing structural changes in the global economy and the growing inflation threat as reasons to invest in gold. The report forecasts gold prices could potentially reach $4,800 an ounce in the next six years, driven by increasing demand from emerging market central banks and robust retail demand in China and India. [cb49b271]
Despite falling retail prices in India, global demand, especially from central banks, remains strong. Traders expect gold prices to remain high over the next 3-5 years due to ongoing global economic uncertainty and geopolitical conflicts. They recommend investors allocate 5-15% of their portfolio to gold as a safe-haven asset. In Thailand, the domestic gold price has risen by about 20% this year, supported by a depreciation of the baht. [daca0817]
Economist Jim Rickards has argued that the decline of the US dollar and the potential for gold to reach $27,000 is a real possibility, as excessive money printing and a growing national debt undermine the dollar's status as the world's reserve currency. He suggests that diversifying portfolios with gold and other hard assets is essential for protection against the dollar's decline. [e2cd1334]
Additionally, a recent analysis by FXStreet indicates that the widening U.S. trade deficit, driven by a resilient domestic economy, is likely to positively impact gold prices. Concerns over the U.S. economic outlook may prompt investors to seek safe-haven assets like gold, especially as the trade deficit reaches its widest position since late 2022. [dc24931c]
Iain Cunningham, Head of Multi-Asset Growth at Ninety One, highlights that structural trends, growing U.S. fiscal risk, and the increasing prospect of Trump's return could provide tailwinds for gold prices in the coming years. The U.S. fiscal position continues to deteriorate, with government debt to GDP over 120% and no fiscal consolidation in sight. [bd533e72]
China's economic policy and geopolitical actions since 2020 have also significantly impacted gold's performance. Chinese savers increasingly view gold as a safe haven over the dollar, with China holding approximately 15% of the world's above-ground gold stocks. A potential triumph of freedom in China could lead to a rise in gold prices if confidence in fiat currencies collapses. [227000e3]