(Kitco News) – Gold and silver have struggled in the wake of Donald Trump’s re-election, and with concerns such as the threat of World War III decreasing, one analyst said the bullish case for precious metals is on the back burner until the current market euphoria subsides.
Surveying the markets one week after Trump’s Victory, Nicky Shiels, Head of Research & Metals Strategy at MKS PAMP, said that “animal spirits have been reawakened,” highlighting that the “SPX is at $6k, Bitcoin is eyeing $100K, the US$ is flying, while the air has been taken out of precious & commodities, for now.”
Shiels underscored the similarities in how the markets responded to Trump’s victory in 2016 to today, noting that “Trump has a lot of ideas with Republicans close to House majority + thus Washington trifecta, which the market is rewarding through higher beta typical Trump trades (Bitcoin, Tesla, US$, tech, prison stocks).”
This graph “highlights the ~2% rally in US$ is very much aligned with the 2016 response and still should extend gains into yearend,” she said, adding, “the reaction in US yields is much smaller (<10bp) this time vs last (+40bp) and US Equities have achieved in one week what it took a month to do under Trump 1.0 in 2016 rally over 5%).”
A second graph examined the price reaction from key commodities, including gold, crude oil, and copper.
“Gold's current 5% WoW fall is exactly in line with what happened in 2016 (Gold then bottomed -12% from the Trump 1.0 win implying Gold's current floor nearer to $2420/200DMA, though I think that would be a gross overshoot),” she noted. “Copper is underperforming its Trump 1.0 trajectory by a wide margin while WTI is on track to match past performance.”
Silver and platinum are also “mimicking the initial decline following the Trump 1.0 win,” Shiels said.
“Back then, Silver bottomed at -13% after Trump's 2016 election win (puts the current Silver price on track to $28.50) and Platinum at -11% (Platinum sub $900),” she noted. “Palladium is currently down 11% after last week's election, heavily defying its past reaction where it should be up 10% 1 week on.”
Regarding the forward-looking outlook for gold, Shiels said she is “aiming for $2,500/oz, but there are preferred other crosses.”
“There’s a confluence of relatively new tactical headwinds, [including] no new bad news/removal of US election premium, ETFs turning net sellers as US equities and other Trump trades perform and detract, Fed and other CBs turning hawkish in just a week, Trump is pro-Bitcoin, Chinese stimulus was underwhelming/Chinese aren’t rushing to buy Gold, geopolitics is oddly quiet/potential Ukraine and Russia peace deal removes more risk premium, inflation is coming but not now (now its restrictive combo of higher US$ & rates) etc.,” she highlighted.
“The complexity with Gold (going up in a straight line throughout 2024, drawing in a wide range of participants) is that on this $200 drawdown, positioning and participants get nervous on the lows and overly bullish on the highs,” Shiels said. “Structurally, nothing has changed; Gold just priced in too much too quickly.”
She said that while it “won't be a straight line down lower (expected bear traps),” gold’s price action “has clearly switched from ‘escalator-up-elevator-down’ (bull market) to escalator-down-elevator-up (neutral/deleveraging/bear market).”
“Longer-term bulls or sidelined ones should stay the course,” she underscored. “Yes, the next $50 is likely lower. The next $100, perhaps as well. The next $500 is not lower. $2500 (the 100dma is ~$2540) is the target, but the preferred G-10 cross is the XAUEUR.”
“Trump has put Europe in a bind when it's already on a weaker footing economically (clearly), politically (Germany's failing coalition) and geographically (proximity to Russia),” she added. “Fed expectations are now centering on they will cut less on inflationary Trump policies (only 3 cuts expected in 2025 with some analysts calling for zero cuts) while the ECB will be forced to cut quicker (on potential US tariffs hit to growth and/or a redirection of investment to defense spending).”
The above graph “shows EUR2400 (-7% pullback from ATHs), and below the 50dma is the next target,” Shiels said.
“Overall, markets are in euphoria territory right now, pricing in both market-friendly + economy-friendly outcomes. US political fear has been taken out, animal spirits unleashed, and there’s just ‘no new bad news’ for Gold (and silver, PGMs) to capitalize on,” she concluded. “So until this Trump trade honeymoon phase runs its course, Gold/Silver are amidst repricing to a less bullish trajectory.”
At the time of writing, spot gold trades at $2,576.80/oz for a decrease of 0.81% on the session.
