The dust has begun to settle after Trump’s election win. After the result was announced, the price of gold dropped – temporarily pausing the bullion’s record-breaking rally – and then rebounded. Despite these fluctuations, though, the long-term investment case for the precious metal is still strong.
Below, we explore what has happened to gold since the US election – and why the future is still golden for this metal.
What happened to gold after Trump was re-elected?
In the run-up to the election, political uncertainty helped to drive up the demand for – and the price of – gold. This is because the yellow metal is a widely recognised safe asset. For example, when the polls showed Trump and Kamala Harris neck and neck on 31st October – five days before the election – gold hit a high of $2,790.15.
Following Trump’s election win, however, gold prices tumbled to $2,559.2 per ounce on 14th November before rebounding slightly. This is largely because the dollar became stronger, buoyed by predictions that Trump’s policies – like trade tariffs and tax cuts – would drive US economic growth.
Some price volatility is normal around the time of a significant political event. The graph below shows what happened to the key commodities of gold, crude and copper after the election. As our expert Nicky Shiels highlights, this is in line with what happened after Trump was last elected in 2016:
Now, let’s look at why the price of gold briefly fell when Trump was elected once again:
💸 Gold's negative correlation to the Dollar
After the election, gold prices saw their biggest weekly decline in over three years. This is partly because expectations of less aggressive interest rate cuts by the Fed boosted the dollar.
When the dollar weakens, gold strengthens, and vice versa. This inverse relationship has been explained due to gold being primarily traded in US dollars. A weaker dollar makes gold cheaper for buyers using other currencies, potentially increasing demand and price. Also, gold is often seen as a hedge against inflation, increasing in value as the purchasing power of the dollar declines.
🇺🇸 Reduced uncertainty
Trump may be a controversial figure in global politics, but his election may have reduced immediate uncertainty around US policy direction. When uncertainty decreases, investors tend to turn away from gold, which leads to a drop in gold prices. However, this may not necessarily be the case for people who invest in gold as part of a long-term savings plan. Even though the price of gold may fluctuate in the short-term during political events, it tends to keep its value in the long run.
💵 Rising confidence in the US economy
After Trump’s win, markets anticipated a continuation of pro-growth policies, such as deregulation and tax cuts. Again, this can cause some investors – but not all – to invest in the stock market instead of gold.
Additionally, stronger economic growth could lead the Federal Reserve to raise interest rates to control inflation. When higher interest rates increase the opportunity cost of holding gold, investors tend to move funds into interest-bearing assets like bonds or savings accounts.
But – and this is important – the price of gold is returning to higher levels. So, the price drop can somewhat be seen as a knee-jerk reaction, rather than a reflection of the metal’s true value.
What may happen to gold prices next?
Since the election, the price of gold has since rebounded. As of 2nd December, it has settled to $2,640.64 – and things are once again looking up for investors 👆 . So what will happen next for gold, as the US adjusts to another term under Trump?
📈 Trump’s policies may support gold
Of course, the future remains to be seen. But during his campaign, Trump pledged to implement sweeping policy changes. Some of these could be positive for gold.
Some of Trump’s policies, such as universal tariffs, could increase the cost of goods broadly if enacted. This is inflationary, which tends to be good for gold. Additionally, he has a history of pressuring the Federal Reserve for lower rates – which is another positive for gold – and his fiscal policies lean towards a weaker dollar and substantial government spending.
That being said, some of his policies could be less beneficial for gold prices. Trump tends to have a pro-business mindset and his policies favour economic growth, so short-term gold investors may be more attracted to other assets like stocks. Also, lower corporate taxes and energy independence tend to drive demand for other investments like equities.
Importantly, though, the price of gold isn’t just affected by US politics. A range of other factors have a significant impact too.
🏦 Central bank gold buying
Central banks, particularly those in emerging economies, are increasing their gold reserves as a hedge against economic uncertainty. In the first quarter of 2024, central banks bought a net 290 tonnes of gold – the strongest first quarter on record. Although it has slowed throughout the year, it still remains strong.
This demand drives the price up. Additionally, individual investors are still flocking to gold for long-term gains. The price of gold now is still considerably higher than it was around this time last year. For example, on 2nd December 2023 it was $2072.04 – whereas it is now $2,641.93 (4th December 2024).
And as always, because the metal is in limited supply, it holds its value.
🌎 Geopolitical conflicts
Gold still has a solid reputation for offering a safer place for investors when things are shaky around the world. With the conflicts in the Middle East, Ukraine and elsewhere, and political tensions still high, gold will likely remain in demand. For example, on 20th November, gold prices rose to $2,650.96 per ounce after Russian President Vladimir Putin approved an updated nuclear doctrine expanding the conditions for using atomic weapons.
“The Trump win makes a Russian/Ukraine deal (that gives Russia the borders they want but with massive spending / funds to rebuild Ukraine) most likely. In one respect that argues for some unwind of geopolitical risk, but on the other leaves Europe in a more fragile/precarious situation. Given this US election outcome, and as America pulls back further from its leadership role, the missing superpower will leave a void and the basis for all this regional geopolitical chaos to largely continue. Thats supportive gold,” Nicky Shiels, Head of Metals Strategy at MKS PAMP, says.
🪙 Safe haven asset
Also, it’s important to bear in mind that gold has held its value throughout history because it is considered a safe haven asset. During unpredictable times, gold is less volatile than other assets – so it will always be in demand. So, gold can be considered a long-term savings solution.
Many investors use the ‘Dollar-Cost Averaging’ (DCA) strategy, means buying a certain amount of an asset at regular intervals, regardless of its price. This helps to protect investors from market fluctuations.
What do experts have to say about the price of gold?
If you’re thinking of investing in gold, or expanding your portfolio, the outlook is positive for the precious metal. What Trump’s presidential term brings – in terms of policies and foreign relations – remains to be seen. But factors that keep gold in demand, including central bank demand and global tensions, are expected to keep the price steady in the long term.
Nicky Shiels says the dramatic price we’ve seen throughout 2024 (in the pre-election period) may slow down briefly, but overall, the outlook still looks strong for gold.
She highlights that the “US election premium” has now been removed because there is no uncertainty over who will become president.
“US political fear has been taken out… and there's just ‘no new bad news’ for gold to capitalise on,” she says. “So until this Trump trade honeymoon phase runs its course, gold and silver are amidst repricing to a less bullish trajectory.”
Additionally, while inflation is likely to be coming in the future (which is generally good for gold) it’s currently being countered by the combination of a stronger U.S. dollar and higher interest rates.
However, gold remains a vital option for investors seeking protection during uncertain times. So, there is still potential for a return to higher levels.
The run-up to the election and Trump’s win may have created waves in the market, but ultimately, the fundamentals of the gold bull market are still strong.
Instead of focusing on short-term price movements, it’s important to remember that gold has held its value throughout history and will likely continue to do so. So check out GOLD AVENUE’s selection of investment-grade gold to secure your long-term savings.
