(Kitco News) – As the results rolled in late Tuesday evening, precious metals markets also cast their vote, with gold selling off sharply from the $2,750 per ounce area all the way down to $2,659.
What did this move signify? In the run-up to the U.S. election, political pundits and economic experts were in broad agreement that both a Harris or a Trump administration would be inflationary, at least in the near term. Was it simply a rotation into risk assets as traders watched equity markets and cryptocurrencies rocket higher?
With a couple of days of perspective, and with the gold price since stabilizing above $2,700 per oz, experts are now suggesting that this was simply the risk bid related to prolonged domestic political strife evaporating from the market.
“Gold lost over 3% in value on the day the presidential election results were tallied,” noted Alex Kuptsikevich, senior market analyst at FxPro. “Cumulatively, from the peak in late October to the recent low, the losses exceed 5%. So far, it does not look like a tragedy. On Thursday, the price added 2.5% from the lows to the high intraday, recovering most of the decline from the day before.”
“I think what happened was gold was pricing in a 2000 scenario,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “Then, when you got a decisive win – to a certain extent, it didn't matter who, just that there was a winner – a certain amount of the event risk got peeled back off. Less than a month ago, gold was at $2,600. It's currently at $2,680 and the peak was around $2,780, so essentially that run-up from, let's call it $2,600 to $2,780, and we're back about half of it.”
“That last part was most likely ‘October surprise, election-turns-into-a-cluster’, and all the rest of it, which did not materialize, so now gold is going back to where it was a month ago.”
Daniel Pavilonis, senior commodities broker at RJO Futures, agreed that relief over the resolved election was the near-term catalyst, but thinks this could be the start of a broader rebalancing of risks that could drive the yellow metal lower in the medium term.
“I think I think the market's reaction is almost deflationary, where you see rates have sold off and gold has come off at $2,800,” he said. “I think maybe we're in the beginnings of a mean reversion where we can see gold sell off into the 200-day moving average before it starts to move higher again.”
“I think another big portion of what would weigh on metals and even the 10-year yield would be slowing down or stopping these wars,” he added. “So Ukraine-Russia, how do they make amends and what kind of effect would that have on precious metals? Because now we're looking at creating a relationship where there's not so much geopolitical risk.”
“And the other thing is, Putin came out and said that they're not trying to get away from the dollar,” Pavilonis said. “If you look at gold being bought up by BRICS and stuff like that, now you have a regime change in the White House.”
“It's been a great run to the upside,” he added. “You may see some major profit taking and then this washout moment, and then you start to see movement back into the market.”
Kuptsikevich said that the technical picture also suggests the potential for a deeper correction.
“Although gold rebounded encouragingly on Thursday, we doubt further gains in the coming weeks,” he said. “We attribute Thursday's recovery to gold bugs attempting to join the general pullback into risk assets, reinforced by the temporary pullback in the dollar that day.”
We do not rule out a deeper decline in price, correcting more than 50% of the rise from the lows of last October,” Kuptsikevich added. “Some capital parked in gold in recent months while the dollar strengthened, as it was a drag from risk. Now, gold may be in for a reversal.”
Next week’s economic calendar is on the light side, especially compared to this past week’s fireworks. The main economic news events to watch will be U.S. core CPI for October, which the Fed will closely monitor for indications that consumer inflation is continuing on the path toward 2 percent, and U.S. retail sales for October, which should provide concrete evidence of Americans’ spending power in the current high-cost environment.
Federal Reserve Chair Jerome Powell will also be speaking on Thursday, which will be his first opportunity to contextualize his press conference comments about the incoming administration and the central bank's independence.
Economic data to watch next week:
Wednesday: U.S. CPI Core Inflation OCT
Thursday: U.S. PPI OCT, Weekly Jobless Claims, Fed Chair Powell Speech
Friday: U.S. Retail Sales OCT, NY Empire State Manufacturing Index NOV
