Earlier this week, it appeared that the gold market was headed sharply higher, climbing close to its 2016 high overnight on Tuesday. In the brief time since then, the precious metal prices have tanked, falling below their levels prior to the presidential election.
A number of gold bulls must be thinking, What's the big idea?
What's causing the decline in gold, silver, and platinum? What can an investor expect over the next two months before the new president-elect takes office?
As election results began to flow in on Tuesday night and reflect Donald Trump's success with voters, financial markets went into panic mode. Stock futures fell precipitously while the price of gold jumped about $60 per ounce, trading just below $1,340/oz at one point. Silver prices, meanwhile, surged to about $19/oz.
Subsequently, the precious metal pair of gold and silver fell even further than where they started, trading around $1,225/oz and $17.50/oz (respectively) on Friday afternoon. It was the biggest weekly loss for gold in three years.
Part of the reason may be the way that President-elect Trump has—finally—pivoted toward a more presidential tone. Markets seemed to calm a great deal when Trump's acceptance speech was conciliatory toward his opponent and the half of the country that didn't vote for him. He followed it up with a largely anodyne meeting with President Obama in the White House on Thursday. These signs of a smooth transition of power, and perhaps even Trump's capacity to behave more like a statesman, appear to have quelled any market anxiety about Trump becoming commander-in-chief.
Beyond the incoming president's more even-keeled behavior and rhetoric, a new wave of optimism among investors also has contributed to the selloff in precious metals. The University of Michigan's consumer confidence survey for November showed a steep increase in positive expectations for the economy. The gauge registered above its 2016 average, simultaneously notching a five-month high with gold's five-month low.
Naturally, these improved feelings about the state of the economy has helped push the U.S. stock markets to new all-time highs. Meanwhile, with less apparent reason to hold safe havens, investors also participated in a massive selloff of U.S. bonds. The yield on 10-year Treasurys climbed from 1.80% to 2.15% in a matter of a few trading days.
While the reasons for the downturn in gold seem straightforward, they're still counterintuitive. It seems to be yet another example of the market overshooting or overreacting. Just because Trump offers unique hope doesn't mean risk-on investors ought to disregard the risk and fundamentals that have made gold one of the best-performing assets this year.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.