From the US election to the recent surge in cryptocurrencies, several external factors have put pressure on the price of gold in the final stretch of 2024. Learn how these elements have recently impacted the price of gold and what the future holds.
Impact of the US Election
The result of the US election, with a Republican victory, generated volatility in the gold market. After reaching an all-time high of $2,744 on November 5, 2024, the price of gold fell by almost 7%, reaching $2,562 on November 13. This is due to several factors that occurred immediately after Trump's victory: namely the strengthening of the dollar, the increase in Treasury bond yields, and the optimism in the stock and cryptocurrency markets
Trends in Gold ETFs and Investment Demand
In the gold ETF (Exchange-Traded Fund) market , capital flows also reflected the outcome of the US presidential election. Significant outflows from gold ETFs were recorded in North America, while solid inflows were seen in Asia.
This suggests that Asian investors view gold as a safe haven asset, stable in the face of geopolitical uncertainty, especially in countries like China, where financial markets have been volatile as a result of President-elect Trump's expressed hostility toward the country.
The decline in the demand for gold ETFs in North America is due to a combination of factors, including a strengthened dollar and the expectations of favorable policies for investments in other assets, such as stocks and cryptocurrencies.
The Role of Cryptocurrencies in Gold Demand
Cryptocurrencies have emerged as an investment alternative, especially for venture capitalists looking for decentralized assets with high return potential. Following the US elections, expectations of pro-cryptocurrency economic policies prompted a sudden rise in the prices of these assets.
While cryptocurrencies potentially offer high returns, unlike gold, they still present extreme volatility and significant regulatory risks. While cryptocurrencies do not replace gold in terms of risk reduction, stability and long-term protection, the relationship between the two assets could evolve towards coexistence in diversified portfolios, where each plays a different and potentially complementary role.
Long-Term Fundamental Support for Gold
Despite the current pressures, there are fundamentals that could boost the price of gold in the medium and long term. The fiscal policies that could be implemented under a Republican administration, such as increased tariffs, tax cuts and lower interest rates, may have an inflationary effect. In this sense, gold could benefit by virtue of its usual role as a hedge against inflation.
Additionally, the concerns about the US fiscal deficit and its impact on the credibility of Treasury bonds internationally may lead investors to seek refuge in gold. It should not be overlooked that in Asia, the demand for gold remains strong due to trade tensions between the West and China, which represents solid support for the global gold market.
Although gold faces significant pressures in the near term due to a strengthened dollar, the potential rise in bond yields and the competition from cryptocurrencies, these factors seem to be rather a response to circumstantial conditions than fundamental factors. The expectation of inflationary policies, along with the excessive size and cost of public debt in the United States, suggests that the price of gold will continue to strengthen in the long- term.
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