GOLD PRICES declined to a 5-month low on Monday morning in London as the US Dollar rose on the FX market amid growing expectations that the US stockmarket's strong gains following Donald Trump's election victory will see the Federal Reserve raise its key interest rate in December, writes Steffen Grosshauser at BullionVault.
Gold dropped 1% from last week's post-election slump to touch $1212 per ounce, its lowest level since 2 June, three weeks before the UK's shock Brexit referendum result saw the metal surge above $1300 per ounce.
Gold prices today popped $15 per ounce higher from that new 5-month low, while European stocks also rose, pushing the pan-European Stoxx 600 up over 1%, but government bond prices fell again.
That meant yields on 10-year US Treasuries jumped to their highest since January at 2.25%.
The US Dollar meantime hit its strongest level against the Euro currency since start-June, rallying after Wednesday's initial sell-off as traders, analysts and pundits said they expect greater fiscal spending and higher inflation to follow president-elect Donald Trump's inauguration next January.
“People seem to have unwound their Trump-risk and are now talking more about 'Trumpflation',” says Jeffrey Halley, senior market analyst at Canadian-based currency data provider Oanda.
“Trump's fiscal policies…with all this infrastructure…would push up inflation and that would push up borrowing rates and yields in the States.”
Fed vice-chairman Stanley Fischer said Friday
that the US economic growth outlook appears stable enough to raise interest rates again after delaying since last December's first rise after 7 years at zero, increasing the opportunity cost of non-interest-bearing gold.
Gold prices have now fallen by more than $100 since the initial spike on news of Trump's election victory.
“We are still negative on gold short-term
in light of a stronger Dollar, rising rates and rising equities,” says US brokerage INTL FCStone's analyst Edward Meir.
“Donald Trump's proposed policies,” says Swiss bank Credit Suisse, “are causing turmoil in emerging markets and higher inflation could prompt the Federal Reserve to accelerate the pace of rate hikes.”
“The rate hike in December is an absolute done deal now,” Oanda's Halley adds.
“With gold closing below the important $1242 support level, a short- and mid-term downside trend pressure is likely into the year-end,” according to German financial services group Commerzbank.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (NYSEArca:GLD), shrank almost 0.8% to 934.56 tonnes as shareholders liquidated stock on Friday.
Silver today caught up with last week's drop in gold prices, falling to the lowest level since the beginning of June by briefly touching $17.06 per ounce.
In contrast, base metals led by copper – now 11% higher from Wednesday's result – reached year-to-date highs as money managers bet that Trump's promise to spend significantly on public infrastructure will boost construction.
“Once we are through this period of over-reaction,” says a note this morning from bullion market-makers ICBC Standard Bank, “we think the rationale for investors to build and hold positions in gold will likely be stronger in 2017, not weaker.
“The US economy may well be facing a slowing real estate market…Sluggish global trade will be facing more protectionism…And jittery moves in longer term inflation expectations will unsettle investors.”