Gold prices fell 2% overnight after Donald Trump won the United States presidency in an election victory that swept across the nation with more support than his 2016 win.
Bullion fell to $2,689.98 per oz. on Wednesday morning as the spot value of the US dollar grew by the most since 2020, according to BMO Capital Markets. It was gold鈥檚 first drop below $2,700 per oz in two and a half weeks.
鈥淲e see gold as likely to be the funding source for portfolio rotation in the near term, but given the de-dollarization of trade is set to accelerate, we still see emerging market support over the coming years,鈥� Colin Hamilton, BMO director of commodities research, said in a note on Wednesday.
While Trump鈥檚 proposed policy of increasing tariffs to discourage imports may initially be offset by expected Chinese economic stimulus, looming global trade conflict would trouble commodities markets, Hamilton said.
鈥淲e expect some renewed interest in bulk commodities through year-end given expectations of a stronger Chinese fiscal package to offset any impact from higher tariffs,鈥� he said.
鈥淏i-lateral US-China tariffs are already factored into projections, but a multi-lateral trade war which drags in Europe and key Asian economies is not,鈥� the analyst said. 鈥淲e see tariffs as a headwind to demand projections across many industrial metals over the first half of 2025.鈥�
Critical minerals impact
The impact, depending on the severity of the tariffs, could slow global industrial recovery and, farther away, could delay climate-change fighting because it depends on China鈥檚 advanced energy transition technology, Hamilton said.
Trump鈥檚 election could hurt the mining industry鈥檚 push into critical minerals. Many companies are bracing for a reduction in billions of dollars in government funding that marked Joe Biden鈥檚 presidency through laws tackling infrastructure building and inflation reduction. The decline in support could compound the impact that lower prices for lithium, nickel and other battery metals have already had on the industry over the past two years.
On the other hand, Trump has promised to boost diminished mining sectors such as coal. And the Republican Party鈥檚 disdain for environmental regulation could help speed some mining projects.
The US dollar and bond yields surged as investors anticipate a mix of tax cuts, deregulation and infrastructure spending, Matthew Jones, precious metals analyst at London-based metals trader Solomon Global, said by email. The promise of tax cuts has pushed bond yields higher as markets price in potential inflation and growth under Trump.
鈥淭his rally in the dollar and yields has put pressure on gold, which traditionally falls as real interest rates rise, reflecting reduced demand for safe-haven assets in the short term,鈥� Jones said. 鈥淗owever, from a longer-term, macro perspective, the future is 鈥榓s good as gold.鈥欌��
Protectionist tariffs
Jones agreed with Hamilton that Trump鈥檚 avowed protectionist tariff policy to reduce trade deficits will disrupt global trade and could promote gold as a haven investment if financial markets encounter turmoil.
Sharp tariff increases can force other countries to retaliate with their own measures. This will heighten inflation because of increased costs on imports and exports, Jones said.
鈥淚f such policies are enacted, they could disrupt global trade and slow economic growth as businesses face higher costs and uncertainty. This disruption would likely be negative for financial markets, as companies could see lower profits and investors might pull back due to the increased risk.鈥�
Canadian Prime Minister Justin Trudeau congratulated Trump on his win and emphasized Canada鈥檚 strong trade ties with the US. It amounted to more than C$1.3 trillion last year, or C$3.5 billion worth of goods and services a day.
鈥淒uring President Trump鈥檚 first term, we successfully renegotiated the Canada-US-Mexico Agreement, which has created thousands of good-paying jobs and has brought investment and opportunity to our communities,鈥� Trudeau said in a release.
鈥淲e look forward to working with President-elect Trump and his administration, including on issues such as trade, investment, and continental peace and security.鈥�