Gold Monthly View for November 2024

The bull market that commenced following the rate cut announcement in the latter half of September encountered significant challenges in November. Shortly after gold reached an all-time high of $2,790 per troy ounce, it found difficult to maintain the elevated level and began to experience a correction. The gold market underwent considerable volatility during November, primarily influenced by critical events such as the U.S. elections, the Federal Reserve's rate cut announcement, and various geopolitical developments.

Following former President Trump's electoral victory, the gold market experienced a notable decline, losing approximately 3% the day after the announcement of the results. This downward trend continued, with a further decrease of 5.3% one week later, and by November 14, the price had fallen by 6.6%. This situation mirrors the initial phase of Donald Trump's first term, during which gold prices also declined for the first 6 to 8 months, ultimately decreasing by around -12% where it bottomed. However, as his policies began to take shape and plans were implemented, gold prices gradually increased, rising by approximately 49% by the end of his term.

Despite Trump's views on matters such as "America First," strict tariffs, and support for cryptocurrencies, the implementation of these policies may pose challenges for his administration, potentially leading to a negative impact on the U.S. dollar, which could be perceived as isolating and impacting other nations increasing the need to diversify away from the dollar dominance. In this context, it is reasonable to anticipate that gold may benefit in the long term, gradually appreciating as time progresses and developments unfold.

The Federal Reserve has been reducing interest rates over the past few months, implementing cuts of 50 basis points in September and 25 basis points in November, as part of its strategy to support employment and growth while inflation trends lower towards its target of 2%. During the press conference following the November meeting, Federal Reserve officials conveyed an increasing confidence in the economic outlook, particularly concerning inflation and the labour market. Policymakers noted that inflation is gradually approaching the Fed's target of 2% and described the current labour market as robust. However, market expectations regarding potential future rate cuts remain mixed, with the CME's FedWatch tool indicating a 63.1% probability of an additional rate reduction at the forthcoming December meeting.

While inflation appears to be under control, the Consumer Price Index (CPI) in the United States rose from 2.4% to 2.6%, marking the first increase in seven months. The higher inflation print contributed to a strengthening of the U.S. dollar in November as it signalled that the Fed may want to be cautious in reducing rates until the economy isn’t plummeting. Although this short-term effect negatively impacted assets such as gold, the long-term implications may differ. With the new administration under President Trump planning to implement higher tariffs and increase domestic production, inflation as well as growth could be significantly affected. In a scenario of slowing growth and rising inflation, the conundrum may compel Fed to reduce rates despite inflationary pressures, this will bode well for gold.

The U.S. Bureau of Labor Statistics reported the addition of 146,000 jobs in November, representing a healthy addition following a disappointing report in October. This stability in the labour market has positively influenced the U.S. dollar, contributing to its appreciation against other currencies. The relationship between employment figures and currency strength highlights the broader economic context, as a resilient labour market may impact future monetary policy decisions by the Federal Reserve. Overall, there remains a demand for workers despite ongoing price pressures and elevated borrowing costs. This development is encouraging for Federal Reserve officials, who no longer perceive the labour market as a source of inflation and are now focused on preserving employment opportunities.

Amidst the ongoing geopolitical conflicts in the Middle East and the situation between Ukraine and Russia, a green light for Ukraine to utilize U.S. missiles raises questions regarding the U.S. stance on international conflicts. The threat of imposition of higher tariffs on Russia, coupled with increased support for Ukraine, may exacerbate geopolitical tensions and potentially pave the way for further conflict. Such developments could result in increased volatility and risk associated with the U.S. dollar, which, in turn, may create a favourable environment for assets like gold.

Overall, while gold has experienced volatility and a decline in the short term, it remains a robust asset from a long-term perspective. As the policies and implications introduced by the new U.S. administration unfold, it will be intriguing to observe their effects on the U.S. dollar and other financial assets. Considering the prevailing geopolitical and economic developments, the outlook for gold remains positive.

In conclusion, investors may find it prudent to consider gold as a strategic component of their portfolios, particularly in times of uncertainty. The historical resilience of gold in times of stress, combined with the potential for increased market volatility, underscores its relevance in a diversified investment strategy. As global dynamics continue to evolve, gold's role as a diversifier against economic instability and currency fluctuations is likely to be reaffirmed.

Source: World Gold Council

Above article is authored by Quantum.

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