Could the election of Donald Trump slow the rise in gold?
In 2016, the victory of the Republican candidate in the American presidential election led to a drop of €100 in the price of gold, with the price falling from €1,180 to €1,080 in the four weeks following the election:
This drop was then completely erased at the start of 2017:
Today, an ounce of gold is quoted at more than two and a half times its 2016 price.
Gold would have to undergo a correction of €250 for us to be able to speak of a drop comparable to that of 2016:
This correction would bring the price of gold back to the level it reached in mid-September.
Gold's correction to dollars is more pronounced as the election outcome benefits the greenback in the short term.
Just like in 2016, Trump's victory strengthened the dollar due to expectations of rapid economic growth, tax cuts and interest rate hikes, making U.S. assets more attractive to investors.
The DXY index has jumped since the results were made official:
The dollar behaves exactly as in 2016: rising in anticipation in October and soaring until the end of the year.
Will the dollar return to this rise by the end of the year?
If so, this move would pose a near-term threat to gold.
However, internal factors are currently supporting the gold price and could ultimately prevent a correction similar to that of 2016.
In the monthly bulletin reserved for Or.fr clients, I highlight the sustained demand from investors in October: gold ETF assets soared last month. Even with rates and the dollar rising, gold's performance in October was historic.
The monthly and quarterly records for gold in euros are even more spectacular:
Gold has gained more than €850 in barely twelve months!
The takeoff of gold a year ago was anticipated thanks to the graphic analysis detailed in my bulletin of October 27, 2023.
A year ago, I wrote: “Gold, for its part, draws a very nice all-encompassing candle in weekly variation, bouncing off its 200-day moving average. This is a bullish sign which will further push COMEX participants who are defending the threshold of 2,000 $: these short sellers will have to work hard to prevent gold from going back into its upward channel.”
In monthly variation, we observe a large encompassing candle. This type of monthly bullish signal is very rare for gold:
The last time such an encompassing candle appeared was in May 1978, just before gold's big takeoff, following the breakout of the third top at $180, and after four long years of consolidation between 1974 and 1978:
A year later, we can consider that this encompassing candle was indeed a bullish signal, just like that of 1978:
These ETF purchases support the price of gold, but the economic fundamentals are also very different from those of 2016.
The US public debt now stands at $35 trillion, with $10 trillion due to be refinanced over the next 12 months, an amount that has doubled in just four years. The deficit has reached $2 trillion, while interest on the debt now stands at $1 trillion — three times more than a decade ago and twice as much as three years ago. These reimbursements absorb 20% of revenues, or $3 billion per day.
The rise in rates observed immediately after Trump's victory:
In 2016, 10-year rates also reacted strongly to Trump's victory before stabilizing around 2.2%:
Today, these same rates now exceed 4.5%, and the debt service is much heavier, with a significant part of the debt to be refinanced in the coming months.
The 10-year bond note chart is even breaking through “failing wedge” in a strongly bearish configuration:
In 2016, this note had collapsed, but its value was 40% higher than today…
A correction of this magnitude would have considerable repercussions on the equity market, particularly on the small cap market. The euphoria following Trump's victory in this segment was mainly fueled by the promise of tax cuts. However, the threat of an uncontrolled rise in interest rates weighs more on these companies, often heavily indebted and facing a refinancing wall that is increasingly difficult to overcome.
No, the situation is not identical to that of 2016!
Trump regains power in a completely different context.
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The information contained in this article is purely informative and does not constitute investment advice, nor a recommendation to buy or sell.
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