Gold's performance during Trump's
As Donald Trump enters the White House to begin a second term, the U.S. economy is facing new challenges despite its current strength. Among these challenges are rising US dollar and US Treasury yields, leading to tighter financial conditions and lower demand for gold, and hence lower gold prices.
So the question remains, can we expect a volatile performance for the safe-haven yellow metal during Trump's second term?
Key Factors Affecting Gold
1. High interest rates: High interest rates make gold less attractive to investors because it doesn't yield as much as bonds. As yields on bonds, especially inflation-adjusted ones, rise, investors favor bonds over gold, leading to lower demand for gold and thus lower prices.
2. The momentum of a strong U.S. dollar: A strong dollar makes it more expensive for foreign buyers to buy gold, because futures contracts are priced in U.S. dollars. This increases the cost of gold internationally and reduces demand.
Is there anything to worry about for gold investors?
Although high interest rates and a strong U.S. dollar may seem like issues, there is a silver lining to these factors. If there is a correction in these factors, it could boost gold's bullish momentum. It's worth noting that gold saw a 64% rally during Trump's first term, meaning there is no conclusive evidence that his policies have negatively impacted gold in the long run.
On the other hand, if the Federal Reserve decides to adopt more accommodative monetary policies (such as lowering interest rates), or if Trump's enthusiasm for the US dollar wanes, this could lead to a weaker dollar, making gold more attractive to investors as a safe haven, thereby driving up its price.
What are the key levels to watch?
The 5 and 10-month moving averages can be used as important analytical tools to identify market trends. In the bull run of 2019 and 2020, these averages served as technical support, helping to identify optimal entry and exit points.
When analyzing the chart, we note that in the last 15 months, gold has closed above the 10-month moving average, indicating the strength and continuity of the uptrend. The 5-month moving average has also been a strong performer, lasting for 14 months during the same period.
What is the outlook for gold?
Based on technical analysis, the overall trend suggests that gold prices may continue to rise. Therefore, keeping a long gold position in place as long as the price remains above the 10-month moving average is a winning strategy. Currently, the 10-month moving average is around $2,525. Unless there is a significant drop in the price below this moving average, the outlook is for the uptrend to continue.
The strategy of placing a stop-loss order slightly below the 10-month moving average is a prudent risk management idea, as it helps protect capital in case of unexpected volatility or if the trade doesn't produce the expected results.
