Decisive Election Outcome and Dollar Strength Move Gold Sharply Lower

Gold prices plummeted in dramatic fashion today following Donald Trump's landslide victory in the presidential election, securing his position as the 47th president of the United States. The outcome marks an extraordinary comeback for the former president, who faced numerous challenges including legal battles, felony convictions, and two reported assassination attempts.

The financial markets responded to the election results with notable vigor, though not uniformly across asset classes. While US equities staged a strong rally and Bitcoin surged to a fresh all-time record above $75,000 on a remarkable 10% daily advance, gold took a decidedly different path. By 3:00 PM ET, the most active December gold futures contract had fallen sharply to $2,675, representing a substantial decline of $78.40, or 2.85%.

Dollar strength emerged as a significant factor in gold's retreat, with the dollar index climbing 1.58% to reach 105.123. However, the selling pressure in gold extended beyond mere currency effects. Even after accounting for the stronger dollar, gold showed an additional decline of 1.27%, suggesting widespread selling interest in the precious metal.

The swift and decisive nature of the election results effectively removed the uncertainty premium that had been supporting gold prices in recent weeks. The metal's recent surge to just above $2,800 per ounce had been built on multiple pillars: election uncertainty and ongoing geopolitical tensions, as well as other factors. While today's sharp decline reflects the removal of election-related concerns, the continuing escalation of conflicts in both the Middle East and Ukraine, Central bank accumulation, and interest rate cuts by central banks globally, provides an underlying level of support for the precious metal.

Technical analysis suggests further potential downside, with gold futures likely to test support around $2,630. This projection stems from a 38.2% Fibonacci retracement of gold's impressive rally, which began in late June when prices stood at approximately $2,350 and extended to the recent record high above $2,800. Supporting this analysis, the stochastic oscillator has shown interesting behavior throughout the rally. While this technical indicator peaked above 80 on three separate occasions, the first two instances led to only shallow retracements that failed to qualify as meaningful corrections. Most recently, on October 29, the oscillator reached 90.97 before the lines crossed and broke below 80, currently residing at 65 and 73.

The sharp decline witnessed today, while attention-grabbing, should be viewed in the context of gold's recent parabolic advance. Such corrections are not only common following such steep rises but can actually be considered healthy for the market's longer-term stability. Looking ahead, there is strong reason to believe that gold will eventually resume its upward trajectory and likely exceed the $2,800 level. The critical questions facing market participants now center on the correction's duration and depth. While prices may continue to decline in the near term, the longer-term bullish outlook remains intact, supported by persistent geopolitical tensions and other underlying market fundamentals.

Wishing you, as always good trading,