The outcome of the 2024 US presidential election, confirming Donald Trump's re-election to the presidency, has had a significant impact on the global financial markets, notably affecting the gold market. Following Trump's victory announcement, there was a noticeable decline in gold prices, with both international spot gold and COMEX gold prices dropping by over 2% in the late hours of November 11.

Factors Underlying the Decline in Gold Prices:

1. Strengthening of the US Dollar

After the election, market sentiments aligned with expectations of Trump's policies boosting US economic growth and inflation, leading to a surge in the US Dollar Index and substantial gains. Following Trump's win, the US Dollar Index reached its highest level since early July, making gold less attractive to non-US dollar investors. Data shows a surge of 175 points in the ICE US Dollar Index, a 1.69% increase to 105.16 on the day of Trump's victory, reaching a four-month peak. Additionally, the US benchmark 10-year Treasury bond yield rose by 16 basis points to 4.437% under these conditions. These figures clearly highlight the strengthening trend of the US dollar and its subsequent downward pressure on gold prices. The appreciation of the US dollar makes gold more costly for investors holding other currencies, leading to reduced demand and a consequent price decline.

2. Shift in Market Risk Appetite

Trump's victory triggered a significant change in market risk appetite. Data indicates that on November 6, post Trump's win, there was a remarkable surge in funds towards risk asset class ETFs, with a single-day inflow of $18 billion, nearly 16 times the daily average for 2024. Among these, small-cap stock ETFs recorded a new single-day high in inflows since 2007, reaching $3.9 billion. This shift in fund flows reflects investors' positive outlook on Trump's policies, expecting them to enhance economic growth. Consequently, investors are more inclined to invest in risk assets rather than traditional safe-haven assets like gold.

3. Decrease in Safe-Haven Demand

Trump's inclination towards reduced intervention in foreign policy, advocating for peaceful resolutions to international conflicts, including a decrease in support for Ukraine, may ease geopolitical tensions and reduce the market's demand for safe-haven assets. When geopolitical tensions ease, the traditional safe-haven appeal of gold diminishes. Furthermore, the Israeli cabinet's approval of a ceasefire framework with Lebanon has further reduced the demand for safe-haven assets in the market, exerting pressure on gold prices.

4. Inflation Expectations and Monetary Policy Adjustments

Following Trump's re-election, the market anticipates his policies to drive inflation higher, typically beneficial for gold as an inflation hedge. However, expectations of rising inflation may prompt the Federal Reserve to tighten monetary policy sooner, reducing the likelihood of rate cuts and weakening the allure of gold. Additionally, robust indicators of US economic recovery, such as GDP growth and declining unemployment rates, have heightened market expectations of rate hikes, prompting investors to shift towards risk assets and intensifying selling pressure on gold.

Conclusion

the strengthening of the US dollar, shifts in market risk appetite, reduced demand for safe-haven assets, and adjustments in inflation expectations and monetary policy have collectively contributed to the decline in gold prices following Trump's re-election. It is advisable for investors to carefully monitor subsequent policy developments and market responses to make well-informed investment decisions.