Gold dumped for riskier options as Trump nears finish line

Source Fxstreet
  • Gold goes out of favor as capital piles into the US Dollar, Bitcoin and Stocks. 
  • Donald Trump is now expected almost certainly to be the next US President. 
  • Technically, XAU/USD extends its short-term downtrend to key support. 

Gold (XAU/USD) trades down by half a percent in the $2,720s on Wednesday due to the US Dollar (USD) strengthening after current results from the US presidential election show Republican nominee Donald Trump on 267 electoral votes, only three short of a victory. Vice President Kamala Harris, meanwhile, is trailing Trump on 224, according to the Associated Press. USD is gaining due to the market view that Donald Trump’s economic agenda and tariffs will strengthen the US Dollar. This, in turn, is negative for Gold since it is mainly priced and traded in USD. 

Investors’ preference for other riskier assets, including Bitcoin (BTC) and equities, also sees flows exiting Gold. 

The uncertainty surrounding the election right up until the end was a driver of safety flows into Gold, which was partly responsible for keeping Gold’s price close to its record highs last week. However, now that the result is almost confirmed, have diminished. 

Trump’s claims that he can end the conflicts in the Middle East and Ukraine, though seemingly exaggerated (“I will have that (Ukraine-Russia) war settled in one day – 24hrs,” Trump said once), could also be reducing safe-haven flows into Gold. 

Gold losses out as Trump trade fully materializes  

Gold loses out to the US Dollar, Bitcoin and US stock index futures as markets celebrate the expected victory of Donald Trump in the US presidential election.

The US Dollar Index (DXY) rose over 1.3% to a peak of 105.32 on Wednesday as it became clear Trump was almost certain of winning. 

US stock futures were also up on the news, with the S&P 500 futures contract up 2.2% at 5,909 in pre-market trading and the Dow 30 futures contract up over 1.3% to 42,770, as markets rejoiced in anticipation of Trump’s likely lower tax agenda. 

Likewise, Bitcoin rose to a new all-time high of $75,407 due to the looser regulatory environment for crypto promised by Trump. 

The pivot back into the US Dollar, Bitcoin and stocks, however, saw capital flow out of bonds and commodities, with US Treasuries, Gold, Oil, Silver and Copper all falling.

Technical Analysis: XAU/USD finds support at key level

Gold falls to support at $2,709, the base of a former range, as it trends lower. The precious metal is probably now in a short-term downtrend and, given the principle that “the trend is your friend,” it is vulnerable to further weakness in the near term.

XAU/USD Daily Chart

A break below the range and the daily low at $2,701 would confirm a lower low and further weakness. Such a move would probably fall to the next support level at $2,687, the September 26 swing high.

The Relative Strength Index (RSI) is falling in line with price, suggesting bearish pressure accompanies the downward trend. 

That said, the precious metal remains in an uptrend on a medium and long-term basis, and a material risk remains that it could reverse course and begin rising in line with these broader up cycles. However, there are no technical signs of this happening yet.

A break above the all-time high of $2,790 would re-confirm the medium-term uptrend and probably lead to a move up to resistance at $2,800 (whole number and psychological number), followed by $2,850. 

  

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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