Gold Finds a Floor After 3% Decline Following Trumps Presidential Victory
Gold Finds a Floor After 3% Decline Following Trumps Presidential Victory
Gold (XAU/USD) has stabilized in the $2,660s range on Thursday after experiencing a sharp 3.0% decline on Wednesday. The decline followed the announcement that Donald Trump had secured a victory in the US presidential election. The immediate impact of Trump’s win was a stronger US Dollar, a pivot toward riskier assets, and diminishing geopolitical risks, all of which placed downward pressure on gold prices.
Despite the short-term downtrend, the precious metal has found a floor in the $2,660s, with some technical indicators suggesting that gold may be due for a potential correction higher, although its near-term outlook remains uncertain.
Gold’s 3% Drop: Key Drivers
Stronger US Dollar
The primary factor contributing to gold’s three percent fall was the strengthening of the US Dollar (USD) following Trump’s election victory. The USD rose as markets anticipated the implementation of Donald Trump’s economic agenda, which includes tax cuts, deregulation, and a more protectionist trade policy. Trump’s preference for tariffs, particularly against China, and his proposed economic measures are seen as dollar-positive, as they could boost the US economy in the short term.
Since gold is priced in US Dollars, any strengthening of the USD typically has an inverse effect on gold prices. As the dollar strengthens, it takes more of the currency to purchase the same amount of gold, leading to a price drop in the precious metal. On Wednesday, the USD’s strength put downward pressure on gold, contributing to its significant decline.
Shift to Riskier Assets
Another significant factor behind gold’s decline was the movement of capital into riskier assets, including stocks and cryptocurrencies like Bitcoin (BTC). With Trump’s victory, markets began pricing in the likelihood of pro-business policies, including tax cuts, deregulation, and less stringent oversight of markets. As a result, stock markets surged to new record highs, and investors showed increased interest in riskier assets, leaving gold, typically considered a safe-haven asset, underperforming.
Bitcoin, in particular, saw a surge to new all-time highs, as investors speculated that Trump’s administration might relax regulatory constraints on cryptocurrencies. This expectation led to further capital outflows from gold, as traders rebalanced their portfolios in favor of higher-risk, higher-reward assets.
Unwinding of Geopolitical Risks
Gold is often seen as a safe-haven asset in times of geopolitical instability and conflict. The expectation of geopolitical uncertainty and unrest can drive up gold prices as investors seek refuge in the precious metal. However, Trump’s rhetoric around ending conflicts in the Middle East and Ukraine likely played a role in diminishing gold’s safe-haven appeal.
Trump’s claim that he could resolve the Ukraine-Russia conflict within a single day, while seemingly exaggerated, may have helped alleviate fears of prolonged geopolitical tensions. If geopolitical risks are perceived as diminishing, the demand for gold as a hedge against uncertainty decreases, leading to lower prices for the metal.
XAU/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
Technical Analysis: Short-Term Downtrend for Gold
XAU/USD Falls Below $2,700
Gold’s steep decline on Wednesday saw it break below the psychological $2,700 support level, eventually falling to the mid $2,660s. This marks a clear shift in the short-term trend for the metal, as gold is now firmly in a downtrend. The key technical principle that traders often adhere to is: “the trend is your friend.” In this case, the trend is bearish, and this suggests further downside risk for gold in the immediate future.
Relative Strength Index (RSI): Oversold Territory
Despite the ongoing downtrend, the Relative Strength Index (RSI) momentum indicator for gold has entered oversold territory, signaling that the metal may be due for a corrective rebound. The RSI is a key tool used by traders to measure the strength of a price move and identify potential turning points. When the RSI enters the oversold zone (below 30), it suggests that the asset may be oversold and that a price correction higher could be imminent.
For traders currently holding short positions on gold, the oversold condition serves as a cautionary signal to avoid adding to positions. If the RSI exits oversold territory and starts to rise, it could trigger a reversal and signal a potential buying opportunity for those looking to enter long positions.
Short-Term Price Targets
Given the current short-term downtrend, further declines in gold prices are a distinct possibility. A break below the $2,643 low could confirm the continuation of the downtrend and lead gold to target further downside levels. One potential next support level is $2,605, which aligns with the long-term trendline for gold.
On the other hand, if gold manages to find support and rebound, traders will closely monitor key resistance levels. A break above the recent peak of $2,700 would indicate a potential reversal of the short-term trend and could open the door for a move back toward higher levels.
Medium to Long-Term Outlook: Uptrend Still Intact
Longer-Term Uptrend Remains in Place
While gold is currently in a short-term downtrend, its medium- to long-term outlook remains positive. Gold continues to benefit from broader macroeconomic and geopolitical factors that support its status as a store of value and hedge against inflation. Despite the recent price drop, there are no significant signs that the long-term uptrend has reversed. Gold remains in an uptrend on the medium and long-term timeframes, and any short-term weakness could provide buying opportunities for investors with a longer investment horizon.
Key Resistance and Support Levels
For traders looking to assess gold’s long-term prospects, the $2,700 level remains a key psychological barrier. A break above the all-time high of $2,790 would signal a continuation of the bullish trend and could lead to a move towards the next resistance levels at $2,800 and $2,850. These price levels represent both round-number and psychological barriers that could act as significant resistance in the future.
On the downside, the long-term trendline and other support levels in the $2,600s could act as a floor for gold. If gold finds support around these levels, it could set the stage for a rebound in line with the broader uptrend.
Short-Term Weakness, Long-Term Potential
In conclusion, gold has experienced a significant 3.0% decline following Donald Trump’s presidential victory, driven by a stronger US Dollar, a shift toward riskier assets, and the unwinding of geopolitical risks. The immediate outlook for gold remains bearish, with the precious metal in a short-term downtrend and potential for further weakness in the near future.
However, gold’s long-term bullish trend remains intact, and any short-term corrections may offer buying opportunities for investors looking to capitalize on the broader uptrend. With the RSI in oversold territory, a corrective rebound could be on the horizon, but traders should remain cautious and watch key levels for signs of a reversal. For now, gold faces a tug-of-war between short-term pressures and its long-term potential, and its next moves will depend on broader economic, geopolitical, and market developments.
