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Gold prices have been hit with their worst weekly drop in more than three years as Donald Trump’s US election victory and a strong dollar send bullion’s historic rally into reverse.
After jumping more than 35 per cent this year to a series of record highs, bullion prices have tumbled 7 per cent this month to $2,561 per troy ounce, including a 3.1 per cent drop on the day following the election.
Trump’s decisive win has reset market expectations as investors weigh the impact of president-elect’s likely policies. Traders have priced in fewer US interest rate cuts and sent the dollar soaring, fearing that potential tax cuts and tariffs could lead to higher inflation.
Gold, as a non-yielding asset, tends to benefit from lower rates, while a strong dollar, in which bullion is priced, also typically weighs on the metal’s price.
Investors pulled $600mn out of gold-backed exchange traded funds in the week ending Nov 8, according to data from the World Gold Council, the biggest weekly outflow since May.
Analysts said some of decline was down to speculative money that had jumped into gold’s rally moving on to the next trend.
“There has been an influx of money into bitcoin and into Tesla, the Trump trades, and that is attracting money from typical safe havens like gold,” said Nicky Shiels, head of research at gold refiner MKS Pamp. “It is not a reversal of the bullish trend, gold simply rose too quickly, and now it is reverting to a less bullish trajectory.”
A settled result, with Republicans taking a “clean sweep” of Congress, has also shifted sentiment. Gold prices have fallen in the 12-week period after nine of the last 12 US elections, according to Rhona O’Connell, head of market analysis at StoneX, the broker.
“An election result, unless it really was clear cut in advance, takes an element of risk out of the markets,” she said.
But analysts also warned the surging dollar was likely to damp demand from central banks, whose large scale purchases have also bolstered the rally.
This year central banks have bought 694 tonnes of gold, according to data from the World Gold Council, diversifying their holdings away from the US dollar.
George Saravelos, head of FX research at Deutsche Bank, said Trump’s policies were likely to weaken emerging market currencies such as the Chinese renminbi.
“Many central banks now need to spend dollar reserves to defend their FX [foreign exchange] from capital outflows and prevent excessive weakening,” he said.
Despite this month’s sell-off, some strategists believe the rally will resume, with O’Connell expecting prices to reach $3,000 per troy ounce next year.
Gold’s rally over the past year has been fuelled by conflict in the Middle East and Ukraine, and by expectations of more rate cuts.
“The adjustment this week just resets gold for now, but the themes that have taken gold to this level are still in place,” said Tom Price, an analyst at Panmure Liberum, pointing to war and geopolitical risk. “All of these have not changed since Trump has been elected.”