Investing.com — Prices have fallen in the wake of the recent US election, with the market witnessing its worst post-election week since 1980.
The yellow metal’s value fell 6% in one week, a sharp decline attributed to a confluence of factors, UBS analysts said.
The dramatic sell-off followed the election, which brought higher expectations for US economic growth and tighter monetary policy, leading to a rise in the US dollar and a corresponding rise in long-term bond yields.
UBS strategists say this precipitous decline can be understood through three key developments. First, the spread between US high-yield credit rates has narrowed significantly, with the (VIX) falling to its lowest level since July.
These shifts indicate declining demand for safe havens like gold as investor confidence in the U.S. economic outlook improved.
Second, the US dollar’s rally – fueled by strong economic data and expectations of fiscal stimulus under the new administration – created headwinds for gold, which traditionally has an inverse relationship with the dollar.
Finally, rising US yields, coupled with expectations of inflationary policies, further undermined gold’s appeal.
Despite the short-term pessimism, UBS maintains a bullish view on gold over the longer term, suggesting that ongoing geopolitical uncertainties and dedollarization trends among central banks could revive demand.
The brokerage expects a target of $2,900 per ounce by the end of 2025, underscoring confidence in the metal’s resilience in a volatile economic context.
For investors, UBS recommends a tactical approach, advising that dips in the gold market provide strategic buying opportunities, especially as the price approaches the $2,500 support level.
They suggest maintaining a 5% allocation to gold in a balanced portfolio as a hedge against potential economic disruptions.
This decline is in stark contrast to pre-election forecasts, which expected gold to perform well regardless of the election outcome.
However, with the dollar gaining on “American growth exceptionalism” rather than “risk-off” sentiment, gold’s traditional safe-haven status has been temporarily eclipsed.