Gold dropped to a five-month low Friday as the post-Trump price surge collapsed and investors redirect funds into industrial commodities and the stock market.
Gold for delivery in December dropped to a session low of $1,223.40 an ounce in morning trading on the Comex market in New York, down over $40 an ounce or 3% from Thursday’s close.
The metal touched a high of $1,338 late on Tuesday as results showed a likely Trump victory, but the rally in record volumes for the Comex market, soon evaporated.
The Financial Times reports a number of prominent hedge fund managers and billionaires running family offices have moved aggressively out of gold and into stocks following Trump’s victory.
Stanley Druckenmiller, a former partner in the George Soros hedge fund, announced in an interview on CNBC he had sold all his gold holdings on the night of the election moving money into equities:
Gold, which has been used by investors as a hedge against inflation and political uncertainty, is expected to perform poorly if the US economy performs more strongly and interest rates rise.
The gold price has an inverse correlation to interest rates as the metal is not income producing and investors have to rely on price appreciation for returns. Higher interest rates also boosts the dollar which usually move in the opposite direction of the gold price.
Gold’s performance is in stark contrast to predictions ahead of the election with many analysts seeing gold reaching $1,500 or beyond.
A Trump triumph could spark as much as a $200 an ounce jump in gold HSBC’s chief precious metals analyst James Steel said ahead of the vote adding that the metal could gain at least a 8% jump whoever wins the race.
Steel commented on gold’s post Trump slump at Reuters saying “gold stayed on the defensive, beset by enhanced growth expectations as… investors took on the view that the pro-growth policies of a new administration were good for paper assets.”
Others believe gold could find renewed interest should Trump’s fiscal policies lead to higher inflation, an environment gold would benefit from.
A research note by Goldman Sachs quoted by CNBC urges investors to buy gold as “market performance indicates a continuation and intensification of the reflation trend since the summer.”
Higher inflation expectations is also cited by Tom Kendall, head of precious metal strategy at ICBC Standard Bank, as a factor that could boost the gold price further out:
Large fiscal stimulus in the form of infrastructure spending is a key part of [Trump’s] vision. The suggested scale of spending will need to be financed at least in part by new debt.
Markets are concerned about the longer-run inflationary effects of increased fiscal spending and a worsening of the US Federal debt to GDP ratio.