Soon after Donald Trump won the presidential election expectations grew that inflation would rise along with bigger deficits as a result of prospective tax cuts coupled with increased spending. Long-term Treasury bond prices fell as yields climbed, reaching a 12-month high of 2.35% by Friday, and the dollar surged as a result of higher rates.
Gold, a traditional inflation hedge, however, lost 5% in price since the election and silver fell almost 9%.
“Higher yields along with a sharply higher U.S. dollar are usually poison for gold,” explains Bart Melek, head of global commodity strategy at TD Securities.
He says gold, which closed slightly above $1,200 an ounce in the futures market on Friday, could test technical support near $1,050 before heading back up if inflation expectations continue to rise and the market perceives that the Fed isn’t raising rates fast enough to counteract that.
Gold prices could also get a bump from a swelling budget deficit due to Trump’s plans to lower taxes while increasing spending, but “no one is really thinking about government deficits yet,” says Melek.
Unlike gold and silver, copper prices rose after the presidential election, buoyed by expectations of rising demand due to Trump’s plans for more infrastructure spending.
Oil prices also appreciated, but only slightly as traders looked toward the November 30 OPEC meeting where an agreement on production cuts is expected.
Despite these mixed price movements, John LaForge, head of real asset strategy at Wells Fargo Institute, says, “This is not a good time to buy commodities” long term because the bear “super-cycle is the dominant factor, not Trump, not the dollar.”