The price of gold has experienced significant volatility in recent weeks, largely following the unexpected strong results of U.S. President Donald Trump’s reelection. Despite this dip, the fundamental factors driving the gold market remain unchanged, and experts predict that the long-term outlook for the precious metal remains solid.
The Impact of Political Events on Gold
The past few weeks have seen gold prices fall sharply, following the unexpected electoral victory of Donald Trump. However, Ole Hansen, the Head of Commodities Strategy at Saxo Bank, maintains that the election of Trump is not the primary driver behind the year-to-date 40% rise in gold prices. According to Hansen, the surge in gold this year is more reflective of broader global unrest and uncertainty rather than any single political event.
In an exclusive interview with Khaleej Times, Hansen explained that while political events, such as the U.S. presidential election, may cause short-term fluctuations in gold prices, they are unlikely to have a lasting impact on the broader market. He emphasized that the fundamental drivers of gold, including geopolitical risks and economic instability, remain intact. “Trump was not the reason why gold is up 40 percent this year. That’s because of the general unrest and uncertainty in the world,” he said. Hansen further noted that these sources of instability are not going away anytime soon, meaning the long-term direction for gold is likely to remain upward.
Recent Decline: A Temporary Setback
Despite the broader positive outlook for gold, the precious metal has been in a freefall for the past few weeks. Hansen attributes this decline to market dynamics, particularly a lack of momentum and the exhaustion of speculative buying that had been driving the price up. He explained that the market had started “to run a little bit out of oxygen,” as speculative positions were liquidated, and physical buyers in major markets like China and India began to hesitate due to the rapid rise in prices.
Hansen also pointed to the surprise strength of the dollar following Trump’s strong election results as another key factor in the recent decline in gold prices. The stronger dollar has been accompanied by rising bond yields, as well as recalibrated expectations for rate cuts by the U.S. Federal Reserve. These factors have collectively put downward pressure on gold, which is often inversely correlated with the strength of the U.S. dollar.
However, Hansen views this dip as a natural part of the market cycle, and not a cause for concern in the long term. He believes that even if gold prices were to fall slightly further, this could ultimately benefit the market by giving it a chance to consolidate and regain its upward momentum. “It’s a relatively important area,” he said of the current $2,600 level for gold, “but even if it should fall a bit further, I don’t see this more as a negative thing. Speculators are getting out of leveraged positions right now, but physical buyers, both in China and India, are likely to return once prices stabilize.”
Rising U.S. Debt and Its Impact on Gold
Another important factor influencing the gold market is the rising concern over U.S. debt. Hansen noted that a growing number of investors are citing fears over the U.S. government’s mounting debt as one of the primary reasons for buying gold. While inflation and geopolitical risks were previously the dominant drivers for gold investment, Hansen believes that the risk of a “debt event” has moved to the forefront in recent months.
The prospect of increased U.S. debt could create a more volatile economic environment, leading investors to seek refuge in gold as a safe-haven asset. Hansen described how the market has shifted from concerns over inflation to worries about the risks associated with excessive debt. “Initially, more debt means higher risk on debt,” he explained. “This shift in focus has become more pronounced in the past six or nine months, and it’s something that the World Gold Council has been hearing more from its investors.”
As the U.S. debt grows, the risk of a debt crisis also increases, which could lead to further instability in financial markets. In times of such uncertainty, gold typically performs well as investors look to protect their assets from the potential fallout of rising debt levels.
Seasonal Demand from India and China
While the global gold market faces some short-term headwinds, seasonal demand from major consumer markets such as India and China could help support prices. The Indian wedding season, which typically starts in late autumn, tends to drive increased demand for gold, particularly in the form of jewelry.
Hansen acknowledged that, while the demand from India may not significantly impact overall gold tonnage, it could influence market sentiment. The psychological effect of increased buying during the wedding season, combined with other factors, could help stabilize prices and drive further interest in gold as a store of value.
In addition to India’s seasonal demand, China remains a key player in the global gold market. Hansen noted that physical buyers in both countries tend to hold onto their gold for the long term, with gold often passed down through generations. This type of long-term demand contrasts with the more speculative behavior observed in gold exchange-traded funds (ETFs), which are more sensitive to short-term market movements.
Gold ETFs: A Source of Volatility
Gold exchange-traded funds (ETFs) have seen net selling in recent days, with some of the largest redemptions since March or May of this year. According to Hansen, the outflows from ETFs are likely contributing to the recent volatility in gold prices. However, he remains optimistic about the future of physical gold, which tends to be more stable than ETF investments.
“ETF flows come and go, but physical gold bought from the market tends not to come back again,” Hansen explained. “That stays in family pockets for generations.” This long-term demand for physical gold, particularly in countries like India and China, provides a level of stability to the market, even in the face of ETF selling.
Despite the recent decline in ETF holdings, Hansen believes that gold’s long-term fundamentals remain strong. He pointed to the ongoing demand for physical gold as evidence of its resilience in the face of market fluctuations.
The Outlook for Gold: A Waiting Game
Looking ahead, Hansen believes that the direction for gold will become clearer as the new Trump administration takes office. Much of the market’s uncertainty will depend on how deep the current correction in gold prices will go. Hansen notes that typically, when gold experiences a significant correction, the recovery tends to be more gradual rather than a sharp, V-shaped rebound.
“If we have a decent correction, it’s not just a V-shaped recovery,” he said. “It tends to be a bit more of a flat view. It takes a little bit of time before you get the momentum back into the market.”
Thus, while the short-term outlook for gold remains uncertain, Hansen is confident that the long-term fundamentals that have supported gold’s rise over the past year will continue to push prices higher. As global economic instability, rising debt concerns, and geopolitical risks persist, gold is expected to maintain its position as a key asset for investors seeking stability in uncertain times.
Conclusion: Gold’s Long-Term Strength Remains Unchanged
Despite the recent decline in gold prices, the precious metal’s long-term outlook remains strong. Experts like Ole Hansen continue to emphasize that gold’s fundamental drivers—geopolitical risk, rising U.S. debt, and global economic instability—remain intact. While short-term fluctuations are to be expected, especially in response to events like the U.S. presidential election, Hansen believes that gold will continue to be a safe-haven asset for investors in the years to come.
As gold prices test new levels and market dynamics shift, the outlook for gold remains positive. The metal’s role as a hedge against inflation and a store of value in uncertain times ensures that it will remain a key asset for investors worldwide.
Related topics: