Gold prices stabilized on Friday morning during the Asian trading session, hovering between $2,565 and $2,570 as of 6:58 AM WIB. XAU/USD has faced significant pressure over the past few weeks, declining by nearly 7.0% in November. This trend coincides with political upheaval in the United States following Donald Trump's election victory, which has had a substantial impact on the US dollar and, by extension, gold prices.
US Dollar and Shifts in Investment Direction
Donald Trump’s return to the White House has had a profound impact on international financial markets. Announcements of potential policies like tax cuts and higher trade tariffs have propelled the US dollar to its peak. This dollar strength has made gold—typically priced in dollars—less appealing to global investors, pushing prices below $2,560 per ounce for the first time in eight weeks.
Inflation and Interest Rates: Key Drivers
Inflation remains a primary focus, with recent data indicating steady price growth despite slight increases in the services and housing sectors. The latest Producer Price Index (PPI) report showed an unexpected annual increase of 2.4%, surpassing analysts' forecasts. Federal Reserve Chair Jerome Powell emphasized that there is no immediate need to slash interest rates significantly, expressing confidence that inflation will eventually align with the 2% target.
However, the market continues to speculate on future interest rate decisions. Data from the Chicago Board of Trade futures market suggests a 72% probability that the Fed will cut rates by 25 basis points at its December meeting.
Shift to Speculative Assets and Reduced Gold Investment
Expectations that the Trump administration will ease cryptocurrency regulations have spurred investors to move into speculative assets like Bitcoin, which recently hit a new record high above $90,000. Meanwhile, major investors have been reducing their long gold positions, shifting into equities buoyed by prospects of corporate tax cuts and deregulation.
Gold-backed Exchange Traded Funds (ETFs) have also seen outflows totaling $809 million in early November. While inflows from Asia have partially offset this trend, demand for gold in China has weakened amid an economic slowdown expected to worsen due to escalating trade tensions with the US under the Trump administration.
Geopolitical Tensions and Gold Demand
Despite these pressures, gold remains a favored asset during periods of heightened geopolitical risk. Trump’s controversial policies, such as appointing Mike Huckabee as Ambassador to Israel, could exacerbate tensions in the Middle East. Huckabee, known as a Zionist and strong supporter of Israeli Prime Minister Benjamin Netanyahu, opposes a two-state solution to the Israeli-Palestinian conflict.
In other regions, such as South Korea and Ukraine, shifts in US foreign policy could lead to new dynamics affecting markets. Heightened tensions may redirect funds toward safe-haven assets like gold, although these geopolitical developments currently pose more challenges than opportunities.
Outlook
Overall, gold faces considerable headwinds amidst a rapidly changing economic and political landscape. While some investors may view these fluctuations as opportunities, others are reassessing their positions on the precious metal as new developments unfold from the policies of the new US administration.