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Gold Prices Records Biggest Weekly Fall in Over Five Months Amid Dollar Strength
Credent International Desk , Nov 09 2024 : Gold prices saw their steepest weekly decline in over five months, primarily driven by a stronger dollar and uncertainty surrounding the U.S. election results. As global markets responded to the victory of Donald Trump and its potential influence on U.S. interest rate expectations, the precious metal took a significant hit. In this article, we will explore the factors contributing to this sharp drop in gold prices, the role of the dollar, and what lies ahead for the gold market.
Gold Prices Drop Amid Strong Dollar
As of Friday, spot gold fell 0.8% to $2,684.03 per ounce by 01:40 p.m. ET (1840 GMT), marking a weekly decline of 1.8%. U.S. gold futures also settled 0.4% lower at $2,694.80. This marked the largest weekly fall for gold prices since May, signaling that market sentiment has shifted following the U.S. presidential election.
One of the key drivers behind this sharp decline in gold prices has been the strength of the U.S. dollar. The dollar index, which measures the greenback’s strength against a basket of six major currencies, gained 0.6% for the week, further adding pressure on gold. Historically, a stronger dollar tends to weigh on gold prices, as it makes the metal more expensive for holders of other currencies.
The Impact of U.S. Elections on Gold Prices
The U.S. presidential election had a profound impact on gold prices. According to Alex Ebkarian, Chief Operating Officer at Allegiance Gold, “In the last month, the story has been the uncertainty risk of the election and if there was going to be normalization of transition, but this election appeared to be very decisive on the White House.” This decisiveness has driven investors towards risk-on assets, moving money away from safe-haven investments like gold and into alternatives such as equities and bonds.
With Donald Trump’s victory, questions have arisen regarding the future of U.S. economic policies, especially in terms of tariffs and interest rates. Trump’s tariff policies, in particular, have cast doubts on the Federal Reserve’s course of action regarding interest rate cuts, which could significantly impact the gold market in the near term.
Federal Reserve’s Influence on Gold Prices
The Federal Reserve recently cut interest rates by 25 basis points but signaled a more cautious approach to future rate cuts. Although rate cuts generally support gold prices by reducing the opportunity cost of holding non-yielding assets, there is uncertainty about whether the Fed will continue with further rate reductions.
Fed Chair Jerome Powell noted that the election results would not have an immediate impact on monetary policy, but many analysts are watching closely. Han Tan, Chief Market Analyst at Exinity Group, stated, “Should markets restore the odds for a pre-Christmas Fed rate cut, that should help keep spot gold above the psychological $2,700 level.” However, the longer-term outlook for gold prices remains uncertain, with interest rate decisions playing a crucial role.
Gold’s Role as an Inflation Hedge
Gold has long been viewed as a hedge against inflation, and this year, its price has reached record levels due to global economic uncertainties. However, higher interest rates can diminish the appeal of gold by increasing the yield on competing assets such as government bonds. As a result, investors may find alternative assets more attractive, which can negatively impact gold demand and prices.
Physical Gold Demand and Other Precious Metals
On the physical front, gold demand has faltered in key markets such as India. Traditionally one of the world’s largest consumers of gold, India has seen a drop in demand, while Japan and Singapore experienced some buying activity. This mixed performance in physical demand highlights the global variation in gold markets and the factors influencing demand.
The decline in gold prices was mirrored by other precious metals as well. Spot silver fell 2.4% to $31.22 per ounce, platinum dropped 2.9% to $968.04, and palladium shed 3.5% to $988.80. All three metals recorded weekly declines, underscoring the broader pressure on the precious metals market.
What’s Next for Gold Prices?
Looking ahead, the outlook for gold prices remains uncertain. Much will depend on the direction of U.S. monetary policy, global economic conditions, and the strength of the U.S. dollar. If the Federal Reserve decides to continue cutting interest rates, it could provide some support to gold prices, particularly if inflation expectations rise.
However, if the dollar continues to strengthen and risk-on sentiment remains prevalent in global markets, gold could face further downside pressure. Investors will need to monitor developments closely, especially as the global economic landscape continues to evolve.