Gold (XAU/USD) prices plummeted on Wednesday, nearing the $2,700 mark, in response to a sharp surge in the U.S. Dollar (USD). This decline follows exit polls favoring Republican candidate Donald Trump in the U.S. presidential race, adding a substantial boost to the USD and sparking a significant sell-off in gold. The strong dollar, paired with a risk-on sentiment in U.S. equity markets and increasing Treasury yields, has limited gold’s safe-haven appeal.
Investors’ concerns over deficit spending and a potentially less aggressive approach from the Federal Reserve (Fed) on monetary easing are further contributing to the downward pressure on gold prices.
Election Impact on the U.S. Dollar and Treasury Yields
Exit polls show former President Donald Trump leading with a current tally of 227 electoral votes compared to 189 for Kamala Harris, with Trump claiming key swing states such as Arizona, Georgia, Michigan, Pennsylvania, and Wisconsin. In addition, Republicans are expected to gain control of the Senate, with projections indicating a win in a critical Ohio Senate seat by Trump-endorsed candidate Bernie Moreno.
The potential return of Trump to the White House has stirred speculation over inflationary fiscal policies and increased tariff measures. These economic concerns have prompted a noticeable rally in the U.S. Dollar, as markets anticipate a possible increase in government spending, which could fuel inflation and influence Fed policy. The result has been a spike in U.S. Treasury bond yields, with the 10-year Treasury yield rising by nearly 15 basis points, reaching its highest level since July at 4.44%.
Gold Under Pressure as Market Sentiment Shifts to Risk-On
With the uncertainty surrounding the election lifting, investor confidence has shifted toward riskier assets, as evidenced by the strong performance of U.S. equity futures. This shift has diverted capital away from safe-haven assets like gold, further pressuring its value.
Despite concerns over geopolitical tensions, including Iran’s warnings of potential retaliatory action against Israel, the safe-haven demand for gold remains subdued. The market appears more focused on domestic economic developments in the U.S., particularly regarding fiscal policy and the Fed’s stance on interest rates, which are crucial determinants of gold’s performance.
Technical Analysis: Key Levels for Gold Prices
Support Levels
Gold prices are currently testing critical support zones, with immediate support expected between $2,725 and $2,720. A decline below these levels could see gold sliding toward $2,690. The $2,675 level represents the next key support zone and could act as a threshold in the near term, potentially indicating further declines if breached. The short-term ascending channel formed since late July will be tested if prices continue below $2,700.
Resistance Levels
In contrast, the $2,748-$2,750 region serves as an immediate resistance level. A successful move past this resistance could lift gold to the next hurdle around $2,780-$2,785. Following this, the $2,800 mark represents a critical pivot point, where sustained gains could potentially reignite the upward trend seen earlier in the year. This level remains a pivotal point that, if breached, would affirm renewed buying interest and possibly resume gold’s long-term uptrend.
Market Movers and Future Outlook
The election outcome and anticipated shifts in U.S. economic policy will likely be the primary drivers for the precious metal’s price movements in the coming days. If Trump’s lead holds, the market could see a continued rise in the U.S. Dollar, creating a challenging environment for gold. However, should gold manage to find support at key technical levels, it may stabilize, especially if investor focus returns to geopolitical uncertainties or potential future Fed rate cuts, which could revive its safe-haven appeal.
The market also awaits the Federal Reserve’s upcoming announcements regarding monetary policy, as any signals of dovish policies could temper the dollar’s strength, providing relief for gold prices.
Summary
In summary, gold prices are under significant selling pressure as Trump’s election lead strengthens the USD and drives Treasury yields higher. The risk-on sentiment reflected in U.S. equities is adding to the challenges for gold, reducing its demand as a safe haven. Traders should monitor the $2,725-$2,720 support area, with sub-$2,700 levels likely if the sell-off intensifies. Conversely, any recovery past the $2,750 resistance could provide a path to reclaim the $2,800 threshold, a level essential for any sustained uptrend.
The outcome of the U.S. election, alongside economic policy directions from the Federal Reserve, will be key to determining the precious metal’s trajectory in the days ahead.
