Gold prices dropped in European trading on Tuesday as the U.S. dollar strengthened sharply, driven by speculation on economic policies from the incoming Donald Trump administration.
Following Trump’s election win last week, an improved risk appetite reduced demand for gold as a safe haven, while the dollar’s rally added pressure on gold prices.
Spot gold fell 0.9% to $2,595.56 an ounce, and December gold futures slid 0.6% to $2,601.55 an ounce as of 06:52 ET (11:52 GMT). Over the past two weeks, gold prices have pulled back from nearly $2,800 an ounce, a previous record high, with sentiment dampened by the dollar’s surge on expectations that Trump’s policies could sustain higher interest rates long term.
Economists suggest that Trump’s potential protectionist trade policies, including widespread tariffs, could reignite inflationary pressures, impacting financial markets.
The dollar has reached four-month highs this week, while U.S. Treasury yields also trended upward.
Investors are now closely watching U.S. consumer price data, expected to indicate persistent inflation in October. Additionally, several Federal Reserve officials will speak in the coming days, providing further insights into rate policy following last week’s 25 basis point rate cut by the Fed.
The CME FedWatch Tool shows traders pricing in a 66.7% chance of another quarter point rate cut in December, with a 33.3% probability that rates will remain steady.
“The post-election dip in gold was unexpected, yet we view this decline as a stumble, not a major shift,” JPMorgan analysts noted.
According to JPMorgan, the recent sell off was primarily driven by short term position adjustments rather than a change in their outlook. They believe a Republican led administration may still support gold’s value in the coming years, as market concerns around currency debasement continue to drive interest in gold for 2025.
