Gold Prices Plummet Due to US Political Pressures
- Gold has weakened by nearly 7.0% in November as a result of the recent political shifts in the United States.
- XAU/USD breaks through a major trendline and declines to the 100-day SMA.
Gold (XAU/USD) has taken a significant hit, dropping almost 7.0% from its peak in November. This decline can be attributed to the impact of the recent changes in US politics following the election of former President Donald Trump. The precious metal’s downward trajectory continued on Thursday, breaking through a crucial trendline and reaching the $2,560 mark. The Republican Party’s majority win in the US Congress, granting control of the White House, Senate, and House of Representatives, has further fueled this decline.
Factors Contributing to Gold’s Decline
Gold prices have been negatively impacted by various factors:
- The Republican Party’s control of the legislature, leading to expectations of inflationary economic policies.
- The strengthening US Dollar, which is detrimental to gold as it is primarily priced and traded in USD.
- The outlook for interest rates, with the Fed expected to implement a 25 bps interest rate cut in December, making gold less attractive compared to other assets due to its non-interest-paying nature.
Gold Faces Pressure as Investors Shift Focus
Gold is also facing pressure from various shifts in investor behavior:
- Outflows from Gold Exchange Traded Funds (ETFs), totaling $809 million in early November.
- Hedge funds exiting long positions after the uptrend to record highs in October.
- Competition from alternative assets like Bitcoin, which is reaching new all-time highs amidst expectations of relaxed crypto regulations under the Trump administration.
Additionally, rising US stocks, anticipated tax cuts, and looser regulations divert funds away from gold. In China, economic slowdown and escalating trade tensions with the US are further reducing demand for the precious metal.
Geopolitical Developments Impacting Gold
Gold prices are influenced by geopolitical risks, which may see fluctuations due to recent events:
- Tentative moves towards de-escalation in global conflicts under the Trump administration.
- Potential impacts of Trump’s appointees, such as Mike Huckabee as Ambassador to Israel, on geopolitical tensions.
Technical Analysis: XAU/USD Downtrend
Gold has broken below a major trendline, signaling a short and medium-term downtrend according to technical analysis. The precious metal is currently targeting support levels around $2,540 and the 100-day Simple Moving Average (SMA).
XAU/USD Daily Chart
A decisive break below the 100 SMA could lead to further declines towards $2,477 and previous highs from July and August. Despite the current downtrend, the long-term uptrend in gold poses a risk of a reversal in the future.
Fed FAQs
For those unfamiliar with the Federal Reserve and its impact on the economy, here are some frequently asked questions:
- Monetary policy and the Federal Reserve’s role in achieving price stability and full employment.
- The Federal Open Market Committee’s meetings and decision-making process.
- Quantitative Easing (QE) and its use during economic crises.
- Quantitative Tightening (QT) and its effects on the US Dollar.