Monthly gold update

Gold: Spotlight on November’s performance

November was really all about Trump, with his decisive victory called much earlier than expected and with the Republican party now having control of not only the White House but both houses of Congress, albeit with slim margins. The election results propelled US equity markets and other risk assets higher but depressed the gold price as a stronger US Dollar and the possibility that interest rates will remain higher for longer weighed on the precious metal. Gold managed to recover some of the month’s losses during the second half of the month but still finished November 3.7% lower. 

Gold dropped in price over the first half of November, largely reflecting sentiment around Trump’s Republican Party victory and possible implications of the returning President’s policies. The market’s initial reaction suggests an expectation that tariffs will be high and broad, driving up inflation, but the more likely scenario is that Trump plans to use tariffs as a bargaining chip to bring foreign leaders to the negotiating table. Time will tell how this, as well as proposed tax cuts and other Trump policies, will impact inflation and the federal deficit.

By the middle of the month, the gold price had shed $180 since election day, a drop of 6.6%. It then clawed back more than $150 over the next week, before sellers returned to the market. The market reacted positively to Trump’s nomination for Treasury Secretary, with Scott Bessent seen as a safe, pragmatic choice who can help keep inflation in check. The USD and bond yields edged lower on the news, giving support to the gold price towards the end of the month.

On the battlefield, Ukraine deployed long-range missiles supplied by the US and UK governments into Russian territory for the first time on 19 November, which Russia responded to by firing ballistic missiles into Ukraine with the threat of further escalation, potentially including western allies. In the Middle East, a temporary ceasefire went into effect on 27 November between Israel and Hezbollah, although some fighting has continued. The next few months could be critical in both conflicts.

November’s 3.7% drop in the gold price broke a four-month “winning” streak (or longer if you ignore the marginal decline in June). While gold exchange-traded products saw modest outflows in the month, the first time in six months, it will be worth monitoring this source of demand – as well as retail buying especially in the important Asian markets – if the gold price tests lower support levels.

US Treasury yields finished the month lower having initially risen, while real yields were also modestly down in November as inflation was broadly stable. The late dip in yields was largely a relief response to Bessent’s nomination. Interestingly, Bessent believes tariffs can be a useful negotiating tool and, used correctly without the government increasing its spending, should not be inflationary. 

The US Dollar carried on from its October rally to continue strengthening during the first three weeks of the month, driven by perceived implications of Trump’s victory, with the DXY index ending November 2% higher. Intra-month, the index had reached its highest level since November 2022, a time when US inflation was 7% and the Fed was aggressively raising interest rates. The USD is up 5% since the start of October.

The pullback in the final week came as bond yields eased, partly in response to Bessent’s nomination to the Treasury helping to calm markets. It was also influenced by the Yen strengthening versus the USD with the Bank of Japan expected to raise interest rates in December. In Europe, meanwhile, the ECB is expected to cut its interest rates by 25 basis points, as a larger reduction is looking less likely.

Keep an eye on …

The market will continue dissecting every comment from Trump in order to gauge what it might mean for inflation, the US Dollar, the federal deficit and interest rates. Data out this week on the US employment market could either help the case for a Fed interest rate cut when the committee meets this month or give reason to pause. The market currently expects a 25 basis-point cut. Perhaps more important will be Fed Chair Powell’s comments from the December meeting.

Also keep monitoring events outside of the US, including Ukraine-Russia and Middle East conflicts. Trump will be keen to bring a swift end to the fighting and has already spoken with the leaders of those countries. Peace is the desirable outcome but is generally negative for the gold price.

Finally, keep an eye on investor behaviour during any downturn in the gold price. Many investors were reluctant to enter the market when gold was at all-time highs, so it will be worth watching to see if investors are buying the dips, whether through gold exchange-traded products, directly in coins and gold bars, or other vehicles. This could be most significant in Asian markets.