KEY POINTS
- Gold sees biggest weekly drop since May amid dollar strength.
- Investors expect fewer Fed rate cuts under Trump’s policies.
- Gold’s inflation hedge appeal remains strong despite fluctuations.
Gold prices fell sharply as the week closed, with the metal on track for its steepest weekly decline since May. Following a volatile trading week, spot gold dropped 0.7 percent to $2,688.91 an ounce by mid-morning in London, down 1.8 percent for the week.
This downturn came after Donald Trump’s victory sparked a rally in the U.S. dollar, weakening demand for commodities priced in the currency.
The Federal Reserve’s recent quarter-point rate cut briefly buoyed gold prices, yet uncertainty persists. Fed Chair Jerome Powell hinted that future rate cuts remain possible, but did not commit, stating recent data shows a still-solid U.S. economy.
Investors are now factoring in fewer potential cuts under a Republican administration, with expectations of higher tariffs, tax reductions, and relaxed regulations likely to boost inflation.
UBS: Gold to hold as inflation hedge despite fluctuations
UBS strategists, including Giovanni Staunovo, anticipate that gold will maintain appeal as an inflation hedge due to anticipated increases in U.S. government borrowing and spending.
Staunovo characterized the post-election drop in gold prices as “surprising and oversized,” especially given inflation expectations.
According to Mining.com, the metal has surged roughly 30 percent this year, reaching successive records as global economic uncertainties and geopolitical risks encourage both investors and central banks to bolster reserves.
Silver also saw a decline, falling below $32 an ounce, on track for its second consecutive weekly drop. Platinum and palladium prices followed suit, with investors watching closely as markets adjust to expectations of slower U.S. rate cuts.
Analysts assess broader market outlook amid dollar strength
The dollar gained further ground Friday, driven in part by China’s recent stimulus package, which disappointed investors and increased demand for safe-haven assets like the dollar.
The Bloomberg Dollar Spot Index was up 0.1 percent. As the dollar continues to strengthen, Wall Street analysts predict a constrained outlook for further rate cuts, with Trump’s anticipated policies likely to add inflationary pressures.
Economists expect continued volatility in precious metals markets as investors weigh the impacts of anticipated fiscal changes and Fed policy.
The current environment underscores a mixed outlook for gold, which remains sensitive to U.S. economic and political shifts.
