Gold Experiences a Significant 7.0% Drop in November.
Gold prices have sharply declined 7.0% this November, largely driven by shifts in U.S. political dynamics. The downward trend comes as markets respond to the recent resurgence of Donald Trump and the Republican Party, whose influence has intensified across key governmental sectors.
The XAU/USD pair has notably breached a crucial trendline and is now hovering around its 100-day Simple Moving Average (SMA). This marks a pivotal moment for gold, as the metal adjusts to the political landscape and economic signals shaping investor sentiment.
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Key Political Developments Behind the Decline
Gold’s 7.0% drop from its November peak aligns with the market’s reaction to the Republican Party solidifying control over the White House, Senate, and House of Representatives. This political consolidation positions Donald Trump to implement economic policies perceived as inflationary but favorable for the U.S. Dollar (USD).
A stronger USD often applies downward pressure on gold prices, given that the precious metal is traded globally in dollars. Despite this, interest rate forecasts offer a counterbalance, especially in light of recent U.S. inflation data. This data has reaffirmed expectations of a 25 basis point interest rate cut by the Federal Reserve (Fed) during its December meeting. Lower interest rates generally boost the appeal of non-yielding assets like gold, as they become relatively more attractive compared to interest-bearing alternatives.
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Investor Shifts and Market Dynamics
Gold is also under pressure due to significant outflows from Gold Exchange Traded Funds (ETFs), which provide investors exposure to gold without requiring physical possession. According to the World Gold Council (WGC), Gold ETFs recorded net outflows of approximately $809 million (12 tonnes) in early November, primarily driven by withdrawals from North America. Inflows from Asia partially mitigated these losses.
Large hedge funds appear to be taking profits by exiting their long positions following the strong October uptrend. Competing investment opportunities, such as Bitcoin (BTC), which recently achieved record highs above $90,000, are also diverting attention. Expectations that the Trump administration may relax cryptocurrency regulations are further fueling interest in digital assets.
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Broader Economic Influences
Meanwhile, U.S. equities are gaining momentum as investors anticipate reduced corporate taxes and deregulation under the new administration, bolstering company profits. This optimism is likely redirecting investment capital away from gold.
In China, the world’s leading gold consumer, demand is softening amid a sluggish economy and rising trade tensions with the U.S. The Trump administration’s hardline stance on trade is expected to exacerbate this trend, potentially dampening Chinese demand for gold further.
Geopolitical considerations also play a role in gold’s performance. Traditionally seen as a safe-haven asset during global crises, gold may lose this appeal if Trump successfully de-escalates international conflicts. A notable development is South Korea’s recent decision to reverse its pledge of lethal aid to Ukraine, signaling a potential shift toward reduced geopolitical tensions.