Gold has been experiencing a significant decline over the past few weeks, coinciding with Donald Trump's election as US President. Despite this, market fundamentals remain unchanged, and the medium-term outlook for gold remains robust, according to an expert.
“Trump was not the primary reason gold has surged by 40 percent this year. This rise is due to global unrest and uncertainty. From a long-term perspective, one must consider whether these factors will dissipate due to this event. Probably not, so the question arises, “Does this mean the trend is still towards higher prices?” Yes, I believe it is,” said Ole Hansen, Head of Commodities Strategy at Saxo Bank, in an interview with Khaleej Times.
Hansen explained that the current drop in gold prices is mainly because the market was beginning to run out of momentum. With Trump's strong victory, the market's initial reaction has been a stronger dollar, rising bond yields, and a reevaluation of rate cut expectations. The most pressing concern for the market is the potential increase in US debt.
“Initially, this will result in more debt and higher risk. For the past six to nine months, when investors are asked why they are buying gold, the issue of debt has become increasingly prominent. It was previously inflation and geopolitical risks, but now, the risk of a debt event due to excessive debt in economies is a major factor,” Hansen noted.
Currently, gold is trading around the $2600 level. “This is a significant area, but even if it falls further, it could be beneficial in the long term as speculators exit leveraged positions. Physical buyers in China and India are hesitant to pay high prices due to the rapid rise. A setback and consolidation period could be good for renewed interest,” Hansen said.
With the Indian wedding season approaching, demand from India is expected to rise, though more from a psychological standpoint than actual tonnage. Additionally, recent days have seen net selling by gold ETFs, with the largest redemption since March or May. However, ETF flows are volatile, while physical gold purchases tend to stay in family hands for generations.
Hansen believes the direction for gold will become clearer as the new Trump administration takes office. “It depends on the depth of this correction. Typically, a significant correction is not a V-shaped recovery but rather a more gradual process that takes time to regain momentum,” he added.
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