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Highlights
- Gold dipped with a Republican sweep and stronger US dollar.
- North American gold ETFs saw notable outflows.
- Rising bond yields and strong dollar hint at possible gold price pullback.
The US election results have played a pivotal role in shaping the current outlook for gold, according to insights from the World Gold Council. Following a record-breaking high at the beginning of the month, gold experienced a decline in the first week of November. This drop was influenced by rising bond yields, strengthening of the US dollar, and a Republican win across key elections, which increased risk-on sentiment in other asset classes.
The World Gold Council’s Gold Return Attribution Model (GRAM) highlighted several key factors that contributed to this downturn. Among these were a strong US dollar, declining momentum in gold prices, and a sharp decrease in managed money net longs on the COMEX, which reflects reduced pre-election hedging activity. Additionally, there was a notable shift in gold exchange-traded funds (ETFs). During the first week of November, global gold ETFs recorded an outflow of around USD 809 million, primarily from North American markets. In contrast, Asian markets saw robust inflows, which partially offset these outflows. This divergence hints at renewed concerns over potential geopolitical tensions, especially in relation to trade issues between the US and China.
Looking ahead, the World Gold Council indicates that gold’s impressive year-to-date performance could be due for a pause or slight pullback. This adjustment might allow the market to consolidate after a year marked by strong performance. The pre-election surge in both Treasury yields and the dollar index had raised expectations of a potential reversal. However, post-election, both yields and the dollar showed renewed strength, which could add short-term pressure on gold prices.
The World Gold Council also emphasized that the election-driven adjustments in bond yields and the dollar could be temporary, and the impact on gold may not persist in the long run. Current dynamics, including higher bond yields, a stronger US dollar, and increased interest in equities and cryptocurrencies, create an environment that may not support continued upward momentum for gold. However, the Council sees this as part of a healthy market cycle.
In the coming months, the interplay of these macroeconomic forces will be crucial for gold’s trajectory.
