Recently, the World Gold Council stated in a new report that gold prices have retraced to a support level of $2,600 following the U.S. elections, primarily due to investors taking profits and shifting to the stock market. Despite the short-term pressure, analysts from the Council emphasized that the downturn in gold is only a temporary phenomenon, and the long-term fundamentals remain favorable.
When analyzing the reasons for the recent retracement of gold, the World Gold Council pointed out that a stronger dollar, outflows from gold ETFs, and reduced positions in the COMEX market are the main factors. Data shows that, in the first week of November, there was a net outflow of approximately $809 million from gold ETFs, mainly from the North American market, while there was an inflow trend in Asia. Additionally, COMEX net long positions decreased by 74 tonnes, an 8% drop from the previous week, reflecting some investors closing positions before the election.
Analysts from the Council also noted that gold has performed well in various currencies, and despite the recent retracement, factors such as a strong dollar, rising U.S. Treasury yields, and temporary easing of geopolitical risks only impact gold prices in the short term. With the incoming U.S. government, expectations of business-friendly policies have driven stock market gains, particularly in the tech sector, but analysts believe that a moderate policy stance could help alleviate some market risks.
The World Gold Council further stated that the long-term fundamentals of gold remain solid. After the Republican victory, fiscal policies might become more inflationary; for example, tighter immigration policies, tax cut plans, and a tendency for low borrowing costs could exacerbate inflation pressures. Meanwhile, fiscal deficit issues and the risk to the U.S. debt credit rating might also trigger increased gold demand from global central banks.
Council analysts indicated that although central banks' gold purchases slowed in the third quarter, investment demand remains strong. In conclusion, the World Gold Council emphasized that the temporary retracement of gold due to the election and a stronger dollar is temporary, and trends such as global market protectionism, business cycle directions, and overvalued stock market environments provide support to gold's mid-to-long-term performance.
