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World Gold Council considers US election result in gold outlook
After hitting a new all-time high on the first of the month, gold moved lower in the first week of November pressured by higher opportunity costs and a Republican clean sweep. According to the World Gold Council’s Gold Return Attribution Model (GRAM), gold was pressured lower by “strength in the US dollar and momentum factors including the lagged gold price, gold ETF outflows which were coming off an exceptionally strong month, and a drop in COMEX net managed money net longs – reflecting the likely unwind of pre-election hedges.”
Global gold ETFs shed an estimated US$809 million during the first week of the month, with the bulk of outflows stemming from North America, which were partially offset by strong Asian inflows. This may signal renewed fears around the resumption of the trade war between the US and China.
Multifactor model detailing attribution of gold’s drivers on its monthly returns.
Looking ahead
The US election results took a sting out of gold’s impressive year-to-date rally which has come amid continued strengthening in bond yields and the US dollar, risk-on sentiment in equity markets, a boost to cryptocurrencies and a quelling of geopolitical tensions.
Given gold’s run this year, a pause or a near-term retracement in gold prices may be a healthy development.
While it was speculated that the pre-election run-up in Treasury yields and the US dollar might have been exhausted and that a turn in the dollar might lead bond yields lower, the election outcome has seen an acceleration of the run-up in yields, plus a quick reversal higher in the dollar index.
The council believes that the negative reaction in the gold price to both the US election results and continued higher bond yields and stronger US dollar is a near-term phenomenon.
Given the stronger bond yields and US dollar, risk-on in equities, a boost to cryptocurrencies and quelling of geopolitical risk, World Gold Council expects that we might see a near-term retracement in gold.
Source: https://www.proactiveinvestors.com.au/