Bullion analyst Sanjiv Arole unpacks the dynamics at play as Trump’s return to power sent shockwaves through global markets, shaking up currencies, commodities, equities, and the precious metals sector, which after soaring to historic highs ahead of the election, was not spared as gold and silver plunged dramatically.
Trump’s dramatic and emphatic win in the US presidential elections, probably, surprised his Republican Party supporters even more than the democrats themselves. The general perception about Trump’s aggression, disruptiveness, unpredictability, impulsiveness, etc., caused all the markets, including the commodity markets to react quite drastically. The US dollar soared against all major currencies, the Dow zoomed, crude oil and gas declined. However, the biggest impact was felt in the commodity markets with both gold and silver taking hits.
In the week before the US presidential elections, towards the end of October, gold soared to its historical all time high of $2,790.07 per ounce. Silver, too seemed buoyant as it sauntered to near the $34.60-70 per ounce region. All appeared to be hunky-dory for the precious metals basket as even platinum and palladium were both comfortably above the $1,000 per ounce mark, with platinum seemingly gaining the upper hand. With another anticipated interest rate cut in December, all the precious metals expected to end the year 2024 at fresh highs. But, then Trump happened and all the bubbles were pricked as gold fell sharply by over 9% to around $2,548.45 per ounce by 14th November as compared to its all-time high of $2,790.07 per ounce. Silver had a much steeper fall by around 15-16% as it declined to even below $29.99 per ounce on 14th November as compared to its recent highs around above $34.60 per ounce. Both platinum and palladium were also left licking their wounds with palladium being slightly better off than platinum below the $1,000 per ounce mark. Currently, gold is around $2,630.30 per ounce (26th November, London am fix, kitco.com) and silver is around $30.30-30.40 per ounce (26th November, London fix, kitco.com). However, gold had ended last Friday (22nd November) at over $2,717 per ounce intra-day and silver too neared $32 per ounce. So, are gold and silver all about Trump in the foreseeable future? Definitely not! Far from it!
Consider the following:
(a) Trump is said to like high interest rate regime and high tariffs to ward off imports into US and promote US business interests. During the election campaign, Trump suggested, nay warned the Fed chief against cutting interest rates in the interim period till the new president assumed his office on 20th January 2025. However, Jerome Powell cut interest rate even after Trump’s victory in the presidential elections. He cut interest by 0.25% in November and it remains to be seen if Powell cuts interest rates again in December 2024. In the past, Powell has fiercely guarded the monetary policy and indicated very strongly that he would not compromise on the independence of the US Fed. He has also asserted time and again that the Fed chief cannot be dismissed by the executive. But, at the same time recently he has been quoted that he was satisfied that inflation was not the core issue at the moment and indicated that perhaps there may be no rate cut in December.
(b) The nomination of Howard Lutnick as US trade secretary is said to be negative for precious metals as he prefers high interest rates and trade barriers to boost domestic industries. This could lead to high inflation that could lead to hike in interest rates and thereby take the sheen of the safe haven status of both gold and silver.
(c) Joe Biden gave Ukraine the permission to utilise (fire) advanced US missiles deep into Russian territory. Russia responded by firing next generation nuclear-compliant hypersonic missiles into Ukraine. This escalated the war further causing some defense experts to proclaim the beginning of World War III. That was reason that gold soared well above $2,700 per ounce late week.
(d) However, a statement the Israeli ambassador in the US that a truce in the Middle East with the Hezbollah group was just a few days away caused both gold and silver prices to decline quite sharply.
(e) In general, there is great apprehension that the burgeoning US debt of over $36 trillion and its servicing could act as a Damocles Sword overhanging global economy. It is said to be 125% of its GDP and every American citizen have a debt of over $100,000. It is like a runaway rogue nuclear device ready to explode and cause unimaginable economic misery all over the world. That could enhance gold’s safe haven status enormously. However, a looming recession could impact other precious metals like silver, platinum and palladium quite adversely given their industrial usage. The situation could become far more fluid with an unpredictable Trump all set to assume office on January 20, 2025.
(f) We all know that the gold price is dependent on far more complex issues than those enumerated in the above paras. As documented numerous times: the gold price depends on demand-supply issues, producer hedging, purchase by central banks, geo-political tensions, financial crises, pandemics, the US dollar, trade and monetary policies, currency wars, trade wars, sanctions, commodity markets, speculations and so on. The list is endless. What is certain is that gold offers solutions or acts as a bulwark against most adversities. With the world in turmoil the yellow metal, probably, offers ray of hope to individuals, institutions and even countries as well.
Elsewhere, Trump’s victory even impacted India as the BSE crashed by around 1,000 points immediately after the Trump result and even the rupee declined by nearly a per cent to an all-time low of Rs.84.40 to a dollar in the middle of November. Gold declined sharply from over Rs.82,000 per 10 gms (including GST) before the results to near Rs.73,739 (excluding 3% GST). Silver, too fell from over Rs.1 lakh per kg (including 3% gst) before the election results in the US to around Rs.87,103 per kg, excluding GST. Currently, the yellow metal is at Rs.75,690 per 10 gms and silver is at Rs.88,463 per kg, both excluding gst and IBJA rates on 26th November 2024 (evening fix). Fortunately, for the jewellers, Trump’s victory has ushered in lower gold and silver prices to coincide with festival and marriage season in India. Thereby, giving hope for better demand for precious metals in the remainder of the year and even into early 2025.
Meanwhile, China is not only the largest consumer of gold in the world with over 630 tonnes of gold jewellery consumption in 2023, but it is also the largest gold mining country in the world for many years now with over 378 tonnes mined in 2023. However, gold reserves with The Chinese Central Bank (People’s Bank of China) is around 2,235 tonnes of gold in its reserves till last year, a mere 4% of its total monetary reserves. Therefore, China has enormous space to boost its gold reserves. The recent news that Wangu mines in the Hunan province had unearthed largest gold deposit in the world sent shock waves throughout the gold industry. It is said that around 300 tonnes of gold reserves are in the main shaft with 40 veins and a further 1000 tonnes below 2000 metres. The total value of these reserves is estimated to be around 600 billion Yuan (more than $82 billion). However, if and when this gold is actually mined and when it will hit the mainstream bullion markets is not known. The details of which are awaited. Therefore, the impact this new mined gold will have on the global demand-supply equation is still in the realms of mere conjecture.
Finally, the Trump relationship status has an interesting aside. Back in 2016, when Trump was first elected as president of USA, the gold price was around $1,300 per ounce on November 4, 2020. However, by mid-December the gold price was around $1,128 per ounce. But, when Trump assumed office in January 2021, the gold price was back above $1,200 per ounce. Generally, it has been observed that gold performed better under Democrat presidents than Republican presidents. Barack Obama’s first term saw over 130% rise in the gold price, but a 29.9% decline in the second term. By the way, Trump’s first term saw gold end with over 69% rise in the gold price over $1,800 per ounce. So, will Trump impact the gold price in a big way? Anybody’s guess!