After a surge to almost $1,340 overnight, the price of gold pared practically all gains on Wednesday. What does it mean for the gold market?
The Election Night and its aftermath were a hot period for markets and we witnessed wild swings. The best example is the gold market. The price of the shiny metal surged from $1,270 to almost $1,340 Tuesday evening when it became clear that Trump would likely be elected. However, when the dust of the U.S. election settled yesterday, the price of gold returned to the starting point, as one can see in the chart below.
Chart 1: The price of gold on November 9, 2016.
Why did gold not sustain its overnight gains? Well, as we pointed out yesterday, we often see knee-jerk reactions to surprising geopolitical events. The unexpected outcome of the British referendum shocked the marketplace and gave the yellow metal a huge boost. However, it was not long until the matter was put aside and markets returned to normal. In other words, investors realized that world was not coming to an end. Actually, Trump has not yet taken office and his program is not known. Surely, the uncertainty about the agenda of the new U.S. administration is still present and supports the gold market. A lot depends on the upcoming declarations of the president-elect. If he promises some anti-trade actions, the end of NATO (or something like that), it should be positive for the yellow metal. But the expectations are already so low, that it could be hard for Trump to under-perform. There may be simply more upside potential, as his victory speech showed. It was, well, a normal speech, but for Trump it was very conciliatory, which probably pleased investors and calmed the markets a bit.
To sum up, the price of gold pared gains after the dust of election had settled. It seems that investors digested the surprising outcome and decided that the world would not end (well, not yet, at least). To be clear, a Trump administration may imply important changes for the markets and there is still important uncertainty about the upcoming policies. The worries about Trump’s policy path should support the price of gold, however, there is also downside potential if it turns out that his declarations were only election promises and he does not want (or cannot) fulfill them. Anyway, if the case of the Brexit vote is any guide, the upcoming few days should be positive for the shiny metal (due to this uncertainty), but focus should gradually shift towards market fundamentals (and the Fed’s next policy meeting in December which is still a likely scenario) and the technical situation, which does not look bullish.
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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.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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