- Gold has fallen since Trump won the US presidential election.
- Trump’s win reduced Fed rate cut expectations as his policy changes could lead to a spike in inflation.
- Market participants are awaiting the US inflation report.
Gold prices edged higher on Wednesday, halting the recent collapse caused by Trump’s election win. The pause came as market participants geared up for the crucial US inflation report, which will give clues to future Fed policy moves.
Gold (Source: Bloomberg)
Gold has fallen since Trump won the US presidential election. Trump’s win led to a rally in the dollar and Treasury yields as markets adjusted to his proposed policy changes. He has proposed reducing taxes in the US and imposing higher tariffs on goods from countries like China. This will boost businesses and increase demand for US goods. Consequently, the economy might heat up, leading to a pause in Fed rate cuts.
Gold has rallied this year due to several factors, mainly the expectation of lower US interest rates. The US economy was overheating for a long time, prompting the US Central Bank to hike interest rates. High rates make the yellow metal less appealing as an investment option. On the other hand, the dollar and Treasury yields soar. Therefore, when the Fed finally paused hiking rates, there was anticipation for lower borrowing costs, which supported gold prices.
The Fed implemented its first rate cut in September, starting with a super-sized 50-bps. Furthermore, markets started pricing more rate cuts this year and in 2025. However, the US economy has remained unexpectedly resilient. At the same time, inflation paused its decline in September. This rekindled caution among Fed policymakers and doubts about a December rate cut.
Doubts intensified when the Republican candidate, Donald Trump, won. Analysts downgraded their expectations for rate cuts in 2025 and forecasted higher inflation. Gold might struggle to make new record highs if this new outlook plays out. Nevertheless, the price will stay elevated if other factors, like central bank purchases, remain in play.
Meanwhile, market participants are awaiting the US inflation report. Economists expect inflation to increase by 0.2% in October and by 2.6% annually. If inflation is higher than expected, gold prices will drop with Fed rate cut expectations. On the other hand, if inflation is cooler than expected, traders will raise the likelihood of a December rate cut, boosting the yellow metal.
