The 58th U.S. presidential election is over. Donald J. Trump has won, becoming the president-elect of the United States. What does it imply for the gold market?
It was a historic night. Donald Trump – the 70-year-old political outsider – was elected the 45th president of the United States. It was a tremendous success for the Republicans, as they gained control not only over the White House, but also over both the House of Representatives and Senate. The election results shocked the markets, as investors and polls forecasted Clinton’s victory. After embarrassing inaccuracy in the case of the British referendum, polls failed once again. Yesterday, we warned investors against putting too much confidence in them.
In line with our expectations, gold benefited from Trump’s victory. Actually, the price of the yellow metal surged about $70 to almost $1,340 in the evening, as one can see in the chart below. It corresponded to about a 5 percent rise, the biggest intraday move since the Brexit vote in June.
Chart 1: The price of gold on November 8, 2016.
As we explained many times (for example, in the September edition of the Market Overview), Trump is considered (rightly or wrongly) as an anti-trade, unpredictable populist. This is why his success boosted the safe-haven demand for gold. Moreover, the market odds of a Fed hike in December plunged from 82 percent to 47 percent. The higher chances of postponing the interest rates hike also gave gold a lift. Last but not least, the complete political dominance of one party (which occurs rather rarely) could also worry investors and support the gold market (as well as a few heated anti-Trump protests).
However, today the price of gold has been declining in the Asian-trading hours. As a reminder, after the surprising Brexit vote, there was a knee-jerk reaction which pushed the shiny metal above $1,350, but very soon the price of gold fell back to around $1,320. It is possible that such a pattern will repeat itself (all in all, there was a huge reaction to Trump’s victory, hence some correction and profit-taking would be perfectly understandable), despite the fact that Trump’s victory could be positive for the gold market in the near future (after the British referendum, the yellow metal was rising for about two weeks), but it doesn’t have to be the case (there are more bearish sings present on the precious metals market than it was the case previously and please note that the daily post-Brexit rally was much bigger than what we saw today). Indeed, the markets could be volatile and the uncertainty about how a Trump presidency will look could support the gold market. On the other hand, since the outcome of the elections is known, uncertainty decreased to some extent and this could mean that gold is about to move lower. Either way, if investors believe that the devil is not as black as he is painted (Trump’s victory speech was surprisingly conciliatory), the uncertainty will ease further and the price of gold could lose its support.
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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