Leading up to Election Day, gold was one of 2024’s best-performing assets. It was even beating stocks. It still is, and a post-election slide could be the buying opportunity some investors were waiting for. This is despite the fact that last week was bullion’s worst weekly performance in five months.
Risk assets responded positively to the election outcome with stocks surging over the subsequent days, but that weighed on gold. Some market observers believe bullion’s pullback will be short-lived, indicating already high-flying exchange traded funds, such as the VanEck Merck Gold Trust (OUNZ ), could generate more upside in the coming months.
One reason for optimism regarding OUNZ and gold itself is that the Federal Reserve is committed to lowering interest rates. It did so to the tune of 25 basis points last week. That followed a reduction of 50 basis points in September. The consensus wisdom holds that several more rate cuts will be unveiled over the course of 2025.
Reasons for Gold Decline Normal, Not Alarming
No asset moves up in a straight line. That is true of gold, which faltered last week. Not only did the election results encourage equity buying, but the outcome removed some of the near-term reasons to own defensive assets. Those reasons include the specter of a contested election and the possibility of a government shutdown.
With those factors off the table, traders took profit in gold, but that was a near-term reaction. There’s still a credible medium- to long-term case for owning bullion and ETFs like OUNZ.
“The reaction was surprising, with participants likely assuming that campaign rhetoric will not fully translate into policy. However, with a red sweep looking likely, we believe the demand for hedges will return despite the risk-on shift,” according to UBS.
The bank sees tailwinds for gold, including rising inflows into ETFs like OUNZ as well as some macroeconomic factors that are supportive of long-term gold ownership.
“Second, the longer-term risks (e.g., a sharp increase in the U.S. fiscal deficit), ongoing demand from central banks to diversify USD holdings, and the impact of potential tariffs on the economy and USD should drive a revival in demand for hedges,” reported Seeking Alpha.
Even with last week’s retreat, the prevailing wisdom in the commodities market is that gold will be able to stay above the important $2,700 per ounce price point.
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