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US President Joe Biden announced on Sunday that he had withdrawn from the presidential race, supporting Vice President Kamala Harris as the Democratic nominee. Judging from gold’s performance today, most traders had already predicted Biden’s dropping out in advance, and the impact of former U.S. President Donald Trump’s return to the presidency on the gold market is obviously more subtle.
TD Securities commodities strategist Daniel Ghali said the new uncertainty has helped boost the precious metal’s safe-haven appeal, while at the same time traders are weighing signs of buying fatigue in Asia, which has been a key pillar of gold’s rally in the first half of this year.
Since the end of last year, the premium of gold on the Shanghai Gold Exchange over its London counterpart has turned into a discount, signalling falling demand from Asian countries.
Last month, China’s gold imports fell sharply, and China’s central bank suspended its gold buying for the second month in a row, sending some ripples through the precious metals market. However, analysts point out that in the absence of Chinese support, gold hit another record high last week, suggesting that the market consensus is going long.
After Biden announced his withdrawal from the election, the sentiment in the gold market appeared to be subtle. Because Trump is an unconventional president, if Trump is re-elected president, the first thing he will do should be to restore the status of the dollar as a reserve currency.
Over the past five years, because of the sanctions imposed by the United States on specific countries and the fact that the dollar is no longer as influential in the international system as it once was, gold has got the opportunity to rise despite the high interest rate environment.
In addition, many traders are concerned that Trump will lower the U.S. corporate tax rate to 15 per cent when he takes office, which could prompt a large number of companies to shift their operations to the U.S., boosting the value of the U.S. dollar and potentially weakening the value of gold.
On the other hand, lowering the corporate tax rate could lead to countries competing to attract large corporations to the country, which would raise the risk of major financial instability and help push up the value of gold.
On a technical level, the price of gold fell below an important price level, the 50-day moving average, on Monday (22 July), which is a bearish sign. The good news is that exchange-traded funds increased their holdings of 87,612 troy ounces of gold in the last session, with total gold ETF holdings achieving a fourth week of gains, the longest streak since last November.
And data from the U.S. Commodity Futures Trading Commission showed that fund managers’ net long position in gold futures recently hit a new high since early 2020.
Spot gold was down 0.1 per cent to $2,397.80 an ounce by the close of trading on Monday afternoon ET, while silver and platinum prices were also slightly lower and palladium prices closed higher.
