The victory of Donald Trump has immediately boosted markets ranging from U.S. stocks to Bitcoin. However, gold may require more time to recover. According to Deutsche Bank, gold's performance in the two days following Trump's victory was the worst among at least 13 U.S. presidential election cycles. Since the election, gold prices have dropped nearly 7%.
Rob Haworth, a senior investment strategy director at Bank of America, noted that interest in gold typically rises when other investment categories falter. With U.S. stocks performing well and even stable returns from low-quality corporate credit, investors are less likely to seek alternative portfolio growth sources.
This decline marks a significant reversal from the previous year's over 30% surge, driven by geopolitical and economic risks that attracted many investors. Although long-term uncertainties remain, particularly with Trump's sometimes unpredictable policies, the anticipated scenario favoring gold—an electoral dispute—did not materialize, significantly diminishing gold's safe-haven appeal.
The strengthening of the U.S. dollar, which negatively impacts gold priced in dollars, along with a seemingly robust U.S. economy, slowing inflation, and a Federal Reserve not in a hurry to slash interest rates further, have also pressured gold.
Matt Miskin, John Hancock Investment Management's co-chief investment strategist, mentioned that with the U.S. economy looking strong across other fronts and geopolitical risks seeming low, gold would present a contrarian investment choice in the current environment.
Knowing what to expect in a potential second Trump term has reduced some uncertainties that previously pushed gold to new highs. The Republican victory signals more room to implement campaign policies, from tax cuts to financial deregulation, attracting hedge funds to sectors likely to benefit, including major banks and U.S. industrial stocks.
Jay Hatfield, CEO of Infrastructure Capital Advisors, highlighted the appeal of allocating capital to financial and other riskier assets, citing a recent 10% rise in Goldman Sachs (GS, Financial) as an attractive opportunity.
Cryptocurrencies surged due to expectations that Trump's policies will boost digital assets. iShares Bitcoin Trust ETF and BlackRock's spot Bitcoin ETF have collectively surpassed $40 billion in assets. This rise coincides with significant outflows from SPDR Gold Shares, the largest physical-backed gold ETF globally.
Invesco's chief global market strategist, Kristina Hooper, indicated that Trump's victory might lead to reduced cryptocurrency regulation, attracting funds away from gold.
However, gold still holds long-term growth potential. Trump's firm policies on taxes and tariffs could eventually lead to higher deficits and inflation, reigniting interest in gold as an inflation hedge. Disruptions in global trade and geopolitical stances during another Trump term might prompt central banks to continue purchasing gold to hedge against U.S. dollar reserve risks.
Gama Asset Management SA's global macro portfolio manager, Rajeev De Mello, suggested that current gold sell-offs might present a buying opportunity, as the significant post-election decline has made gold more affordable.
