Gold falls after sweeping Trump win boosts dollar

Gold prices fell 2% overnight after Donald Trump won the United States presidency in an election victory that swept across the nation with more support than his 2016 win.

Bullion fell to US$2,689.98 per oz. on Wednesday morning as the spot value of the U.S. dollar grew by the most since 2020, according to BMO Capital Markets. It was gold’s first drop below US$2,700 per oz in two and a half weeks.

“We see gold as likely to be the funding source for portfolio rotation in the near term, but given the de-dollarization of trade is set to accelerate, we still see emerging market support over the coming years,” Colin Hamilton, BMO director of commodities research, said in a note on Wednesday.

While Trump’s proposed policy of increasing tariffs to discourage imports may initially be offset by expected Chinese economic stimulus, looming global trade conflict would trouble commodities markets, Hamilton said.  

“We expect some renewed interest in bulk commodities through year-end given expectations of a stronger Chinese fiscal package to offset any impact from higher tariffs,” he said.

“Bi-lateral U.S.-China tariffs are already factored into projections, but a multi-lateral trade war which drags in Europe and key Asian economies is not,” the analyst said. “We see tariffs as a headwind to demand projections across many industrial metals over the first half of 2025.”

Critical minerals

The impact, depending on the severity of the tariffs, could slow global industrial recovery and, farther away, could delay climate-change fighting because it depends on China’s advanced energy transition technology, Hamilton said.

Trump’s election could hurt the mining industry’s push into critical minerals. Many companies are bracing for a reduction in billions of dollars in government funding that marked Joe Biden’s presidency through laws tackling infrastructure building and inflation reduction. The decline in support could compound the impact that lower prices for lithium, nickel and other battery metals have already had on the industry over the past two years.

On the other hand, Trump has promised to boost diminished mining sectors such as coal. And the Republican Party’s disdain for environmental regulation could help speed some mining projects.

The U.S. dollar and bond yields surged as investors anticipate a mix of tax cuts, deregulation and infrastructure spending, Matthew Jones, precious metals analyst at London-based metals trader Solomon Global, said by email. The promise of tax cuts has pushed bond yields higher as markets price in potential inflation and growth under Trump.

“This rally in the dollar and yields has put pressure on gold, which traditionally falls as real interest rates rise, reflecting reduced demand for safe-haven assets in the short term,” Jones said. “However, from a longer-term, macro perspective, the future is ‘as good as gold.’”

Protectionist tariffs

Jones agreed with Hamilton that Trump’s avowed protectionist tariff policy to reduce trade deficits will disrupt global trade and could promote gold as a haven investment if financial markets encounter turmoil.

Sharp tariff increases can force other countries to retaliate with their own measures. This will heighten inflation because of increased costs on imports and exports, Jones said.

“If such policies are enacted, they could disrupt global trade and slow economic growth as businesses face higher costs and uncertainty. This disruption would likely be negative for financial markets, as companies could see lower profits and investors might pull back due to the increased risk.”

Canadian Prime Minister Justin Trudeau congratulated Trump on his win and emphasized Canada’s strong trade ties with the U.S. It amounted to more than $1.3 trillion last year, or $3.5 billion worth of goods and services a day.

“During President Trump’s first term, we successfully renegotiated the Canada-U.S.-Mexico Agreement, which has created thousands of good-paying jobs and has brought investment and opportunity to our communities,” Trudeau said in a release.

“We look forward to working with President-elect Trump and his administration, including on issues such as trade, investment, and continental peace and security.”