Gold suffered its worst month since 2013 in November, dropping by more than $100 per ounce, and has been on a steady decline since President-elect Donald Trump won the historic US election earlier that month.
Investors are concerned that the downward trend could continue into this month. The price of gold continued to drop slightly on Thursday, settling at 1172.49 today, a drop of $5.10 (0.43%). Friday morning’s trading saw the commodity trading mostly sideways.
Gold was trading at $1,337 before the election, but recently dropped below a critical support level.
The drop in the price of the yellow metal was largely due to the ‘risk-on’ environment created in the wake of Trump’s victory, according to market analysts, with improved market sentiment driving demand for higher-yielding assets. An abrupt spike in long-term real bond yields also played a large role in the loss of gold’s luster, as the asset class supplanted it as a safety option.
Trump’s investment plans are also expected to have an inflationary effect on the US market, boosting the dollar, but putting pressure on gold’s price due to the diminished ‘safe haven’ effect that traditionally attracts investors to precious metals. In addition, minutes of the US FOMC policy meeting in November created further selling pressure. When the regime change is complete in January, the markets will have to adjust to the accommodation of new monetary policy, with fiscal expansion for the first time in years.
Large institutional investors have been reinvesting their pots of gold into traditional savings accounts as bullion loses its appeal. According to Mining.com, the metal has “now trimmed its year-to-date gains to 9.8 per cent”.
The correction that happened to the gold price immediately after the election also seems to have had more steam than some had initially imagined.
For those looking to take long positions on the metal through the plethora of online trading options, such as UFX.com, the situation is far from hopeless.
Gold’s long-term appeal may not be significantly dented by the recent sell-off activity, and global market volatility may actually create favorable trading conditions for it over the medium term.