- Gold prices plummet as Trump’s election victory boosts the US dollar and Treasury yields.
- Market sentiment shifts towards higher interest rates, diminishing gold’s appeal.
- Technical analysis suggest bearish momentum is building, will safe haven demand return and underpin Gold prices?
Gold prices in freefall as the US Dollar Index and US Treasury Yields surged following a Donald Trump election victory. The US Dollar Index and US 10 Yield are both trading at levels last seen in July with the former up around 1.7% on the day. The Republicans have secured the Senate as well while there is growing optimism of a clean sweep which would see them claim the House as well which in theory should underpin the US Dollar moving forward.
US Election Results
Source: Edison Research, Reuters (click to enlarge)
Market participants appear convinced that a Trump victory will lead to higher rates for longer, thus diminishing the appeal of the non-yielding precious metal. This coupled with renewed optimism that President Trump will be able to reach a peace deal in the Middle East has also weighed on Gold prices.
Looking at the rate probabilities for December and we can already see significant repricing of expectations. Prior to the elections markets were pricing in a 77% probability of a 25 bps cut in December, this has been revised down to 66% post election and could decline further should the republicans secure the House as well.
Source: CME FedWatch Tool (click to enlarge)
The problem for Gold prices moving forward is that President Trump will only take office in January. This means that any of the optimism around a Middle East peace deal and the potential for higher rates may not change until then. This could leave Gold in a spot of bother with the recent selloff likely to continue.
The Federal Reserve meeting tomorrow is likely to have a limited impact on markets. The outlook moving forward by the Fed will be key for now, but markets may be hesitant to look too far ahead. The reason is simple, with Trump assuming office in January there is a chance that the Fed outlook may face significant changes in the new year if tariffs and inflation become topics of concern.
Technical Analysis Gold (XAU/USD)
From a technical analysis standpoint, Gold has been flirting with overbought territory since the Middle of October before the accelerated selloff today. Looking at the daily timeframe and Gold is now trading below the long-term ascending trendline (inner) for the first time since it started way back in August. A daily candle close below this level could open up the potential for a deeper pullback.
Gold (XAU/USD) Daily Chart, November 6, 2024
Source: TradingView (click to enlarge)
Looking at a four hour chart, Gold had been showing signs that bullish pressure had been starting to wane. This was most notable by the multiple rejections of the 2750/oz handle, which faced multiple tests this past week.
Having broken below the 2700 handle, Gold selloff gathered momentum rushing toward the 2750 psychological level. A break of this handle opens up a run toward the 2639 support area before the 2624 comes into focus.
Given the speed of the selloff, the possibility of a retracement before continuation is also a possibility. A retest of the trendline could be ideal for market participants looking for a potential bearish continuation.
This would require a pullback toward the 200-day MA which lines up with the trendline and key level at 2685.75. Should momentum build, a deeper pullback toward 2700 would not rule out a further leg to the downside and would provide a potentially better risk to reward for potential shorts.
Gold (XAU/USD) Four-Hour (H4) Chart, November 6, 2024
Source: TradingView (click to enlarge)
Support
- 2650
- 2639
- 2624
Resistance
- 2673
- 2685
- 2700
