Gold prices have fallen significantly, dropping below the $2,600 per ounce mark for the first time in two months. This decline follows a three-day drop, with gold prices now approximately 7% lower from their historic high. The primary triggers for this rare decline include the election of Donald Trump as U.S. President, leading to expectations of eased geopolitical tensions, particularly concerning the Russia-Ukraine conflict and Middle East issues, which subsequently reduces gold's appeal as a safe-haven asset.
Additionally, the likelihood of multiple Federal Reserve interest rate cuts has diminished, with predictions now suggesting only 3 to 4 cuts next year. This, combined with domestic tax cuts and increased tariffs, raises concerns about persistent U.S. inflation. The combination of a strong dollar and high interest rates presents a significant challenge for non-yielding assets like gold.
Following Trump's election victory, gold experienced a more than 3% drop in a single day. Currently, it hovers around the crucial $2,610 per ounce level, testing the strength of this support. Analysts, like Jerry Chen from Gain Capital, highlight that maintaining this level is challenging due to the robust U.S. dollar, especially amidst potential rises in U.S. CPI data. Short-term strategies focus on selling on rebounds, eyeing support levels between $2,530 and $2,560, then $2,500.
Despite this downturn, gold has still seen substantial growth this year, previously rising by as much as 40%. Analysts predict that, despite these fluctuations, gold still holds long-term potential due to uncertainties in Trump's policy agenda. The fundamentals supporting gold remain robust, with expectations of increased investments in gold exchange-traded funds as the Federal Reserve continues to cut rates.
In contrast to gold investment, the gold jewelry market faces challenges, with global jewelry demand decreasing by 12% year-over-year. For instance, Chow Tai Fook anticipates revenue drops of 18% to 22% for the first half of the 2025 fiscal year compared to the previous year.
Long-term expectations suggest that as geopolitical tensions stabilize and domestic policies become clearer, gold may regain stability, with investment firms like UBS maintaining a 12-month price target of $2,900, and Goldman Sachs targeting around $3,000.
In summary, while gold is currently facing headwinds due to a strong dollar and reduced geopolitical risk, it remains a strategic asset in diversified portfolios, with the potential for price stabilization and recovery over the medium to long term.
