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Gold Fell after Trump Won the Election

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Nov. 21 2016, Published 12:11 p.m. ET

Sliding metals

Gold futures have been falling. On November 18, they hit the lowest level since May. The gold futures contract for December expiration fell almost $5.8 and traded close to $1,211.7 per ounce. The spot prices fell more than 1% during the past week. The price has lost close to $130—compared to its post-election peak. The spot prices fell more than $130 per ounce from their post-election peak. The prices were hurt by the rise in the dollar and a surge in US Treasury yields.

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The fall in precious metals was likely due to the rise in Treasury yields and the US dollar. There are expectations that Trump will provide a large fiscal stimulus through tax cuts and infrastructure spending. The news is essentially good for the country’s currency and negative for dollar-denominated assets like gold and other metals.

Funds and miners follow

The impact on the metals can be easily studied through investment in funds like the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV).

[marketrealist-chart id=1762193]

In the above chart, these two funds closely replicate the investments in gold and silver over a one-year period.

Precious metal–based shares like New Gold (NGD), Newmont Mining (NEM), First Majestic Silver (AG), and Silver Wheaton (SLW) also closely follow the returns in precious metals most of the time. The correlation between the major mining stocks and precious metals remains reasonably high.

Yellen’s comments

On November 17, Fed Chair Janet Yellen mentioned in the congressional testimony that Trump’s election has done nothing to change the Fed’s plans for a rate increase “relatively soon.” However, the chances of a hike remained as high as 1% during the past week. It continues to have a negative impact on metals and shares that follow metals.

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