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Asset Watch
Tuesday, November 19, 2024
It’s been a boon for Bitcoin in recent weeks, as Trump’s victory has crypto enthusiasts pricing in exponential growth over the next four years. While the FX alternative basks in the glory, much of its success has come at the expense of gold.
But, with the latter still in an uptrend and a major 2024 outperformer, is the recent sell-off a buying opportunity?
When investors assess gold’s fundamental prospects, two key variables are considered: the U.S. dollar and real interest rates. When the USD rises, it’s more expensive for foreign investors to purchase gold (on an FX-adjusted basis), which reduces its appeal. Similarly, when real interest rates rise, bond yields exceed expected inflation, and since gold is a non-yielding asset, the yellow metal suffers.
Add it all up, and the last two weeks have been a fundamental nightmare for gold. With the U.S. dollar and Treasury yields soaring, gold’s main adversaries have benefitted from the ‘Trump Trade.’
But is this just a bump in the road?
JPMorgan quantitative strategists told clients on Nov. 14 that the recent flow data contrasts 2016 when Trump first became president. Back then, gold ETFs and futures saw significant outflows as investors favoured equities. This time, the “positive flow trend” from futures and ETFs signals more “upside for gold prices.”
Moreover, higher potential inflation, geopolitical risks, and central bank buying are other bullish catalysts that could enhance safe-haven demand.
When zooming out and analysing the monthly chart, Fibonacci retracement analysis signals that long-term support is present near $2,400. Likewise, the level aligns near the 10-month moving average (the yellow line) and should provide a ‘worst-case scenario’ floor if the correction continues.
As a more likely outcome, the 5-month MA (the blue line) has been reliable support for some time. After the breakout in late 2023, gold dipped below the 5-month MA five separate times before ending each month above it.
A similar situation is unfolding with the 5-month MA near $2,580, so it wouldn’t be surprising to see gold end November above the key level.
In a nutshell: when the U.S. dollar and Treasury yields stop rising or begin to decline, the gold bulls will likely return with plenty of enthusiasm.
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