Is a bottom-fishing opportunity here? Gold has fallen to a one-month low, but Wall Street remains bullish at $3,000

Zhitong Finance learned that this week the market continues to heat up the "Trump trade," the US dollar continues to rise, and international gold prices have fallen to a one-month low. Following a 2.5% drop on the previous trading day, gold prices fell by 0.6% on Tuesday, as the US dollar index reached its highest level in a year, related to Trump's promise of tax cuts and trade tariffs. As of the time of writing, spot gold's decline narrowed to 0.5%, at about $2,606 per ounce, approximately 7% lower than the record high set last month. The Bloomberg Dollar Spot Index has risen for the third consecutive day. Prices of precious metals such as silver, palladium, and platinum have also declined.

The strengthening dollar has made dollar-denominated commodities more expensive for most buyers. Since the US elections last week, gold has fallen by about 5%, as hedge funds unwound their bullish positions, and with funds generally shifting to the US stock market, the capital flows into exchange-traded funds (ETFs) have become less supportive of gold.

The world's largest gold ETF has experienced the largest single-week outflow of funds since 2022. Following Trump's victory, traders took profits, leading to an outflow of over $1 billion from the world's largest gold ETF—SPDR Gold Trust—last week, marking the largest single-week outflow since July 2022.

The total holdings of gold ETFs fell by 0.4%, marking a second consecutive week of decline. Last month, due to the high uncertainty surrounding the US elections, investors flocked to safe-haven assets, but with Trump's victories in key battleground states and the Republican control of the Senate, investors exited positions to take profits. Trump's victory also boosted US stocks and the dollar, reducing gold's appeal to investors holding other currencies.

Chris Weston, head of research at Pepperstone Group Ltd., stated that this sell-off was "partly technical," following a breach of the 50-day moving average that led to a replenishment of long positions.

Gold prices have fallen to a one-month low due to the strengthening dollar.

Supported by the Federal Reserve's easing cycle, central bank purchases, and increased geopolitical and economic risks driving safe-haven demand, gold prices have still risen over 25% this year to date.

Investors will look for clues about the Fed's easing path from the US October core CPI report (excluding food and energy) to be released this week. Last week, the Fed lowered interest rates by 25 basis points. Many economists believe that the inflation impact of Trump's policies has led to a lower-than-expected rate cut. Lower borrowing costs tend to benefit gold, which does not pay interest.

Adam Turnquist, chief technical strategist at LPL Financial, stated that rising economic growth and inflation expectations have pushed up bond yields and the dollar, reducing the appeal of gold to investors who do not receive interest returns. Turnquist said, "A continuously strengthening dollar may weigh on international stock markets, especially emerging markets and most commodities." "Platinum, gold, and silver are the commodities most negatively correlated with the US dollar."

Investment Banks Remain Optimistic About Gold's Future Trends

Nevertheless, due to the demand for physical gold from major central banks, the influx of investors into physical gold ETFs, and the expectation of speculative positions continuing, many analysts expect gold prices to rise further.

Regarding the decline in gold prices, UBS strategists, including Giovanni Staunovo, believe that the drop in gold prices the day after the election was "unexpected and excessive." They think that gold may receive support as a hedge against the inflationary pressures brought about by increased US government borrowing.

Citi pointed out in its research report that historically, gold tends to perform poorly after US presidential elections. For example, after Trump took office in 2016, gold fell by 8% within a month. However, Citi noted that this trend provides investors with a buying opportunity on dips and still believes that gold prices will rise to $3,000 per ounce within six months.

Goldman Sachs also predicts that gold prices will reach $3,000 per ounce by the end of 2025. Goldman Sachs' Lina Thomas and Daan Struyven wrote, "History shows that when uncertainty rises and investors seek safe havens, gold holdings tend to increase."

There is no doubt that gold prices are under short-term pressure, but JP Morgan stated last week that the long-term drivers for gold prices remain intact, maintaining a bullish long-term outlook: gold continues to be the main beneficiary of the Federal Reserve's interest rate cuts, central bank gold purchases, and global currency devaluation targets. These drivers have supported gold prices at various times over the past year and are likely to continue regardless of the outcome of the US election.

The global commodities analysis team at JP Morgan, led by Natasha Kaneva, wrote in their report: Regardless of the outcome of the US election, the supporting factors remain, and we view any pullbacks that occur post-election as buying opportunities.

Huaxi Securities also released a research report stating that in the medium to long term, although the tariff policies and manufacturing repatriation measures that will be implemented after the Trump administration takes office may lead to a stronger US dollar, its positive fiscal and tax reduction policies will increase the overall government fiscal deficit, leading to expectations of rising inflation in the future. The ongoing escalation of global geopolitical conflicts and uncertainties regarding tariff policies towards China may also present significant trading opportunities for gold in the medium term. The long-term upward trend in gold prices remains a major trend, and there are optimistic prospects for future gold allocation opportunities