Commodities
What will the US elections bring for the US dollar and gold prices?
Investing.com — As the U.S. elections on November 5 approach, financial markets are keenly attuned to any shifts in economic policies that might affect the dollar and prices. If one party wins the presidential election, varying scenarios are likely to unfold regarding these key assets.
“The US dollar has a dual character meaning it has a cyclical nature, while also being the ultimate safe haven currency,” said an economist at ABN AMRO (AS:) Bank in a note.
This duality means that in times of strong economic growth—particularly when growth outpaces inflation, real interest rates are positive, and fiscal and current account balances are improving—the dollar tends to rally.
However, in periods of extreme market stress and liquidity shortages, the dollar’s role as a safe haven becomes paramount, driving its value up as investors seek stability.
A Democratic victory in the upcoming election, whether partial or full, is expected to have a limited impact on the U.S. dollar. As per ABN AMRO Bank, under a Democratic administration, inflation is likely to decrease, but policy rates may decline even faster, leading to a reduction in real rates, which is typically negative for a currency.
While a slight deterioration in the fiscal balance might exert some downward pressure on the dollar, the overall impact is anticipated to be modest, resulting in a relatively stable dollar with only minor fluctuations.
In contrast, a Republican victory could lead to increased volatility for the U.S. dollar. At first, the dollar may experience a boost, fueled by expectations of stricter trade policies, such as the introduction of tariffs, which could enhance the trade balance.
The combination of rising inflation and faster interest rate hikes compared to other nations would further support the dollar’s strength.
However, this initial surge is likely to be temporary. As the broader economic impacts of these policies become apparent, the dollar could see a decline over the longer term.
In a scenario where a Republican administration implements widespread tariffs—a “Hard Trump” scenario—the resulting divergence between U.S. and European monetary policies could be among the most pronounced since the euro’s launch in 1999.
This scenario could result in a depreciation of the euro relative to the dollar, potentially driving the exchange rate below parity.
However, as market sentiment stabilizes and the negative consequences of these policies begin to impact the economy, the initial strength of the dollar could reverse, leading to a phase of marked dollar weakness.
Turning to gold, this precious metal has traditionally been viewed as a safe haven, especially during times of economic uncertainty.
However, the dynamics of the gold market have evolved in recent years, particularly with the rise of gold ETFs, which have made gold more of a speculative asset, heavily influenced by investment flows, U.S. dollar movements, and real interest rates, rather than merely by its traditional role as a safe haven.
If the Democrats win, “we think the gold prices could be very modestly supported because we expect a modest decline in or a neutral dollar and some lower real yields. We expect gold prices to stay around USD 2,500 per ounce,” said an economist at ABN AMRO Bank.
Conversely, a Republican victory, particularly one that leads to the implementation of widespread tariffs, could create a more complicated scenario for gold.
In the early years of such an administration, rising inflation and increasing interest rates could bolster the dollar, potentially driving gold prices below their 200-day moving average, possibly down to $2,000 per ounce.
However, as the dollar’s initial strength fades and real interest rates decrease, gold is likely to rebound, with prices potentially exceeding the highs reached earlier in 2024.
(Reuters) – Gold hit a record high above $2,600 per ounce on Friday, as the prospect of more U.S. interest rate cuts and global geo-political uncertainty boosted its appeal.
Bullion has risen more than 26% so far this year, and as market bulls lock in further gains, another milestone of $3,000 per ounce is in focus.
Here are the different avenues for investing in gold:
SPOT MARKET
Large buyers and institutional investors usually buy gold from big banks. Prices in the spot market are determined by real-time supply and demand dynamics.
London is the most influential hub for the market, largely because of the London Bullion Market Association (LBMA). The LBMA sets standards for gold trading and provides a framework for the OTC (over-the-counter) market, facilitating trades among banks, dealers, and institutions.
China, India, the Middle East and the United States are other major gold trading centres.
FUTURES MARKET
Investors can also get exposure to gold via futures exchanges, where people buy or sell a particular commodity at a fixed price on a particular date in future.
COMEX (Commodity Exchange Inc), a part of the New York Mercantile Exchange (NYMEX), is the largest market in terms of trading volumes.
Shanghai Futures Exchange, China’s leading commodities exchange, also offers gold futures contracts. The Tokyo Commodity exchange, popularly known as TOCOM, is another big player in the Asian gold market.
EXCHANGE TRADED PRODUCTS
Exchange Traded Products (ETPs) or Exchange Traded Funds (ETFs) issue securities backed by physical metal and allow people to gain exposure to the underlying gold prices without taking delivery of the metal itself. [GOL/ETF]
ETFs have become a major category of investment demand for the precious metal.
Global physically backed gold ETFs attracted a fourth consecutive month of inflows in August after North American and Europe-listed funds increased holdings, the World Gold Council (WGC) said.
BARS AND COINS
Retail consumers can buy gold from metals traders selling bars and coins in an outlet or online. Both gold bars and coins are effective means of investing in physical gold.
DRIVERS:
INVESTORS AND MARKET SENTIMENT
Rising interest from investment funds in recent years has been a major factor behind bullion’s price moves.
Sentiment driven by market trends, news, and global events can also lead to speculative buying or selling of gold.
FOREIGN EXCHANGE RATES
Gold is a popular hedge against currency market volatility. It has traditionally moved in the opposite direction to the U.S. dollar as weakness in the U.S. unit makes dollar-priced gold cheaper for holders of other currencies and vice versa.
MONETARY POLICIES AND POLITICAL TENSIONS
The precious metal is widely considered a “safe haven”, bought during uncertain times in a flight to quality.
Major geopolitical events, such as extended conflicts in the Middle East and Europe have added to uncertainties for global investors and burnished gold’s appeal.
Policy decisions from global central banks also influence gold’s trajectory. Lower rates reduce the opportunity cost of holding gold, since it pays no interest.
Gold’s latest rally was triggered after the U.S. Federal Reserve began its easing cycle with an outsized half-percentage-point cut on Wednesday.
CENTRAL BANK GOLD RESERVES
Central banks hold gold as part of their reserves. Buying or selling of the metal by the banks can influence prices.
Central bank demand has been robust in recent years because of ongoing macroeconomic and political uncertainty, analysts have said.
More central banks plan to add to their gold reserves within a year despite high prices for the precious metal, the World Gold Council (WGC) said in its annual survey in June.
Investing.com– Oil prices retreated Friday, but were still headed for a weekly gain as a bumper U.S. interest rate cut helped quell some fears of slowing demand.
At 08:20 ET (12:20 GMT), fell 0.6% to $74.47 a barrel, while dropped 0.5% to $70.79 a barrel.
Oil heads for weekly gains on rate cut cheer
Crude prices have staged a strong recovery from near three-year lows hit earlier in September, with a bulk of their rebound coming this week as the dollar retreated on a by the Federal Reserve.
was trading up about 3.95% this week, while WTI futures were up 4.4%.
Increased tensions in the Middle East also aided crude, after Israel allegedly exploded pagers and walkie talkies belonging to Hezbollah members, sparking vows of retaliation. Fighting in and around Gaza also continued.
A softer aided crude prices after the Fed cut interest rates by the top end of market expectations and announced an easing cycle, which traders bet will help spur economic growth in the coming quarters.
Lower rates usually bode well for economic activity, which in turn is expected to buoy crude demand.
China demand concerns persist
But China remained a key point of contention for crude markets, as economic readings from the world’s biggest oil importer showed little signs of improvement.
The People’s Bank of China kept unchanged on Friday, despite mounting calls on Beijing to unlock more stimulus for the economy.
Data released earlier in September showed Chinese refinery output slowed for a fifth straight month in August, while the country’s oil imports also remained mostly weak.
Concerns over China dragged oil prices to a near three-year low earlier this month, and have limited any major recovery in crude.
“China has obviously been the key concern when it comes to demand, but there have also been reports of refiners in Europe cutting run rates due to poor margins,” said analysts at ING, in a note.
(Ambar Warrick contributed to this article.)
By Arunima Kumar
(Reuters) -Oil prices eased on Friday, but were on track to register gains for a second straight week following a large cut in U.S. interest rates and declining global stockpiles.
Brent futures were down 50 cents, or 0.67%, at $74.38 a barrel at 1004 GMT while U.S. WTI crude futures fell 48 cents, or 0.65%, at $71.47.
Still, both benchmarks were up 3.7% and 4% respectively on the week.
Prices have been recovering after Brent fell below $69 for the first time in nearly three years on Sept. 10.
“U.S. interest cuts have supported risk sentiment, weakened the dollar and supported crude this week,” UBS analyst Giovanni Staunovo said.
“However, it takes time until rate cuts support economic activity and oil demand growth,” he added, regarding crude’s more muted performance so far on Friday.
Prices rose more than 1% on Thursday following the U.S. central bank’s decision to cut interest rates by half a percentage point on Wednesday.
Interest rate cuts typically boost economic activity and energy demand, but some also see it as a sign of a weak U.S. labour market.
The Fed also projected a further half-point rate cut by year-end, a full point next year and a half-point trim in 2026.
“Easing monetary policy helped reinforce expectations that the U.S. economy will avoid a downturn,” ANZ Research analysts said.
Also supporting prices were a decline in inventories, which fell to a one-year low last week. [EIA/S]
A counter-seasonal oil market deficit of around 400,000 barrels per day (bpd) will support prices in the $70 to $75 a barrel range during the next quarter, Citi analysts said on Thursday, but added prices could plunge in 2025.
Crude prices were also being supported by rising tensions in the Middle East. Walkie-talkies used by Lebanese armed group Hezbollah exploded on Wednesday following similar explosions of pagers the previous day.
Security sources have said the Israeli spy agency Mossad was responsible, but Israeli officials have not commented on the attacks.
China’s slowing economy also weighed on market sentiment, with refinery output in China slowing for a fifth month in August and industrial output growth hitting a five-month low.
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