Gold Price Declines to Multi-Week Low Amid Trump-Led USD Rally
Gold Price Declines to Multi-Week Low Amid Trump-Led USD Rally
Gold prices have plummeted to a multi-week low, trading around the $2,700 mark as the US Dollar surges to a four-month high. This decline is largely attributed to a “Trump trade” effect, driven by former President Donald Trump’s strong showing in the latest US election polls, which has triggered sharp gains in the USD and a “risk-on” sentiment across markets. This article examines the current price movement of gold (XAU/USD), contributing factors, and technical levels to watch.
Key Market Factors Impacting Gold Prices
1. US Dollar Surge Following Election Polls
The recent surge in the US Dollar, driven by the possibility of Donald Trump securing a win in the US presidential race, has put intense pressure on gold prices. This rally in the USD, which has climbed to its highest level in four months, reflects market anticipation of Trump’s return and the policies he may reintroduce.
2. Surging Bond Yields and Risk-On Sentiment
US Treasury bond yields have also risen sharply due to speculation surrounding deficit-spending and potentially inflation-driving tariffs under a Trump-led administration. This jump in bond yields—especially the 10-year benchmark yield, which recently climbed to 4.44%—further supports the USD and detracts from non-yielding assets like gold. Additionally, a rally in US equity futures signals a risk-on sentiment among investors, further weighing down the XAU/USD pair as demand for safe-haven assets diminishes.
Market Movers: US Election and Economic Factors
1. Election Exit Polls
Initial exit polls suggest a lead for Trump, with an electoral tally of 227 for Trump to 189 for Vice President Kamala Harris. Trump’s dominance in key swing states, including Arizona, Georgia, Michigan, Pennsylvania, and Wisconsin, has amplified market sentiment. Notably, Fox News has projected Republican control of the Senate, adding further confidence in Trump’s chances and strengthening the USD rally.
2. Deficit-Spending and Tariff Speculation
There is rising speculation that a Trump-led government could reintroduce tariff policies that may contribute to inflation. Additionally, concerns over potential deficit-spending by the administration have fueled a spike in Treasury yields, putting downward pressure on gold as investors seek better yields elsewhere.
3. Geopolitical Tensions and Risk Factors
Despite rising geopolitical concerns, such as Iran’s potential retaliation against Israel, the safe-haven appeal of gold appears to remain overshadowed by domestic economic events. While Middle Eastern tensions typically support gold prices, current US political developments and bond market behavior have led investors to shift focus.
XAU/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
Technical Analysis: Gold Price Levels and Key Support Zones
From a technical standpoint, gold (XAU/USD) shows a downward trend, with various support and resistance levels defining its path.
Immediate Support Levels
$2,725 – $2,720 Zone
The $2,725-$2,720 area has emerged as a significant support level. This range serves as an immediate buffer, offering short-term stability amid the recent sell-off.
Sub-$2,700 Threshold
A break below $2,700 would place gold near the lower boundary of its ascending trend channel. Extending from July, this channel has provided support during prior corrections. Should prices fall beneath this level, it could signal a continuation of the downward trend, with potential declines towards the $2,675 mark.
Key Resistance Levels
$2,748 – $2,750 Resistance Zone
On the upside, the $2,748-$2,750 area currently presents the first major hurdle for gold prices. This zone could limit any short-term gains in XAU/USD, as it aligns with the top boundary of recent price consolidation.
Ascending Channel Hurdle at $2,780 – $2,785
If prices manage to break above $2,750, they may test the ascending trend-channel resistance around $2,780-$2,785. This level could prove crucial in determining if the recent pullback is simply a correction or a shift in the broader trend.
Psychological Barrier at $2,800
The $2,800 level remains a pivotal point for gold’s long-term trajectory. A decisive break above this level could mark a resumption of the previous uptrend, as it would suggest renewed buying interest and improved sentiment in favor of the safe-haven metal.
Broader Market Outlook for Gold
The broader market outlook for gold hinges on several factors, including future Federal Reserve policies, bond yield behavior, and geopolitical risks.
Federal Reserve and Interest Rate Expectations
A Trump victory may lead markets to expect reduced Fed intervention in the form of rate cuts or quantitative easing, especially with a strong USD. As a result, Treasury yields could remain elevated, limiting gold’s appeal among yield-seeking investors.
Geopolitical Factors
Geopolitical tensions can periodically create safe-haven demand for gold, but current market sentiment is being heavily shaped by US domestic events. Should geopolitical risks escalate significantly, it could offset some of the USD’s strength, thereby providing some support for gold prices.
Long-Term Gold Price Implications
While short-term pressure on gold persists, long-term investors may view this dip as an entry opportunity. Gold’s role as a hedge against inflation and economic uncertainty remains relevant, especially amid prolonged economic policy shifts. Traders should monitor upcoming policy statements from the Federal Reserve for signs of shifting interest rates or economic outlook, as these would impact both the USD and gold’s price action.
Navigating Gold’s Path Amid USD Strength
Gold’s current decline reflects the strength of the USD rally following the latest US election polls. As Trump edges closer to a potential victory, risk-on sentiment has surged, drawing investors to equities and pushing bond yields higher. These factors have driven flows away from non-yielding assets like gold.
In the short term, technical levels around $2,700 and resistance at $2,750-$2,800 will be key to watch. If the downtrend extends past immediate support levels, the $2,675 zone could offer the next significant price floor for gold. However, a recovery above $2,800 could signal a renewed uptrend and serve as an indicator of stronger buying momentum for XAU/USD.
Ultimately, gold’s future trajectory will depend on ongoing US political developments, bond market trends, and any escalation in geopolitical tensions, all of which traders should keep a close watch on in the coming weeks.
