Gold's bullish outlook intact despite short term headwinds

The immediate aftermath of Donald Trump’s historic win in the US presidential election saw gold prices plunge as the dollar strengthened but precious metal analysts in Dubai vouch for the yellow metal’s bullish safe-have outlook in the long-term.

In Dubai, gold prices dropped to $2,655 with 22K hovering around Dh298.75 per gram from a peak of Dh311.25 on October 30, the highest ever. Globally, gold futures dropped as much as 3.0 per cent to as low as $2,673 per troy ounce on Wednesday. The metal now has shed about 5.0 per cent of its value since peaking at its latest all-time high of $2,805 per troy ounce a week ago.

While historically, gold has been viewed as a safe haven asset, particularly during times of political uncertainty, Trump’s return to the presidency has shifted market sentiment. Gold prices fell significantly, with analysts attributing this decline to a combination of factors, including expectations of economic growth and potential changes in monetary policy.

Dubai’s bullion and jewellery market analysts see a bullish impact on gold in the long run, fuelled by US inflationary pressures and currency weakness in China in the face of possible trade tariffs.

Shamlal Ahamed, managing director of Malabar Gold’s international operation, said the market’s response to Trump’s victory, marked by a decline in gold prices, is anticipated to be temporary. “While this drop indicates economic confidence in the new administration, future gold prices and market trends will be shaped by their trade policies, particularly with China, as Chinese banks might increase their gold purchases in response to unfavorable trade policies. Nonetheless, we remain confident that gold prices will rise in the long term.”

“Gold often thrives in environments of uncertainty, but Trump’s win signals a return to a more business-friendly administration,” said Sajtih Kumar P.K., CEO and managing director of IBMC Financial Professionals Group. Dubai. “Investors are optimistic about potential US tax cuts and deregulation, which could lead to a stronger economy and, consequently, a stronger dollar. This diminishes gold’s appeal as a hedge.”

“When confidence in the economy rises, gold tends to lose its luster,” noted Kumar. “We may see further declines if the administration implements policies that boost growth and employment.”

K.P. Abdul Salam, vice chairman of Malabar Gold and Diamonds, said while the decline in gold prices following the US elections was anticipated, “it is not certain that this trend will persist, as upcoming government trade policies, particularly with China, could impact the markets and gold prices, with Chinese banks increasing their gold purchases in response to unfavorable trade policies. However, we remain confident that gold prices will trend upward in the long run.”

Dilin Wu, research strategist at Pepperstone, told Khaleej Times that despite gold facing significant short-term pressure, there is room for a more moderate recovery in the medium to long term. “As we saw in 2020, the post-election pullback in safe-haven demand is unfolding, with traders 'buying the rumor, selling the fact.' Trump’s victory has sparked expectations of policies that could favor tougher tariffs, tax cuts, and expanded fiscal spending, which could stoke reflation fears. This is evident in the recent surge of U.S. Treasury yields and the dollar index climbing above 105, diminishing gold’s appeal as a non-yielding asset. Additionally, his push for deregulation has fueled gains in equities, drawing capital inflows that further pressure gold.”

“While Trump’s win is largely priced in, three key uncertainties remain that could shape gold’s future. First, Republican control of the House could accelerate Trump’s agenda, reducing policy uncertainty and potentially limiting gold’s upside by bolstering the dollar. Second, with November’s US jobs data underwhelming, another 25bp rate cut in December could provide modest support for gold. Finally, China’s ongoing National People’s Congress session is one to watch. As one of the largest gold buyers, any aggressive stimulus measures or yuan devaluation from China could strengthen gold’s long-term appeal,” said Wu.

“A stronger US dollar and higher yields in the aftermath of the Trump win may be headwinds for gold but this will be balanced with potential safe-haven demand in the event of any trade tensions,” said Jun Rong Yeap, a market strategist with IG Asia Pte.

Analysts argue that Trump’s policies are likely to bloat the federal deficit — and the resulting inflationary risk could boost gold’s appeal as a hedge against rising prices. The metal has surged almost 30 per cent this year to repeated record highs fueled by heightened geopolitical and economic risks, driving purchases by central banks and consumers alike. The rally intensified in recent months as the Federal Reserve pivoted to interest-rate cuts and the US election loomed.

“The market sentiment following Trump’s victory is characterized by a complex interplay between optimism for economic growth and concerns about inflation. While gold may struggle in the short term, its long-term outlook remains intact, particularly if inflationary pressures materialize,” they said.

Expectations that central bank purchases, geopolitical tension, and declining interest rates will persist have led many analysts to project further gains in the price of gold, with Goldman Sachs predicting gold will reach $3,000 per ounce by the end of 2025.