Precious Metals Drop Sharply After ‘Red Sweep’ U.S. Election Day

 

Precious Metals Down, Stocks Up As Republicans Win Big On Election Day

(Bullion News Network) – In what some analysts are calling the “greatest political comeback,” former President Donald Trump secured a sweeping victory against Vice President Kamala Harris on Tuesday. Although several states have yet to be called as of this afternoon, President-Elect Trump secured enough votes to clinch the election early Wednesday morning. Republicans also won control of the U.S. Senate, picking up three seats, and are on track to secure a majority of seats in the House of Representatives. 

Markets reacted to the ‘red sweep’ this morning. The Dow surged over 1,200 points, a stock market jump which some analysts attribute to a widespread belief that President-Elect Trump’s tariff policies would strengthen the U.S. Dollar by hammering U.S. trade partners around the globe. The foreign currencies of U.S. allies declined sharply as markets adjusted to the possibility of a more hawkish approach to international trade. Unsurprisingly, precious metals dropped as traditional markets soared and faith in the United States Dollar climbed. 

Gold lost over $75 by midday, tumbling below the $2,700 support and settling at around $2,670/oz. Silver dropped over $1.30 per ounce, falling to its lowest price since October 14th. The market retreat drove the gold-silver ratio up 1.30:1 to over 85:1, its highest number in nearly one month. Price action in precious metal markets correlates strongly with the stock market run; traders who anticipate a stronger U.S. Dollar in the next few months are pulling out of inflation hedges like gold and silver in favor of traditional stocks and bonds. 

With a pivotal Federal Reserve meeting scheduled for tomorrow, investors should expect a relatively volatile week for gold and silver. 

Wall Street’s happy-go-lucky mood after Republican Donald Trump’s election victory is propelling US stocks, but soaring bond yields isthreatening to put a damper on this risk-on vibe https://t.co/fcIifTmCqG

— Bloomberg (@business) November 6, 2024

The FOMC Meets Tomorrow – Here’s What Gold and Silver Investors Should Know

Tomorrow will be the Federal Reserve’s first meeting since the committee voted for a ‘jumbo’ 50 bps rate cut in mid-September. This meeting will come on the heels of a controversial – and perhaps surprising – U.S. election. CME Group’s FedWatch Tool projects that the Fed will almost certainly opt for a 25 bps rate cut, a move that is likely part of Federal Reserve Chair Jerome Powell’s plan for a soft economic landing heading into 2025. These odds remained unchanged from the beginning of this week, despite a run-up in the stock market after former President Trump secured his re-election. 

Another rate cut would likely inject more life into the American stock market, but the potential effect it would have on precious metals is still uncertain. Traditionally, precious metals like gold and silver perform well in climates characterized by falling interest rates. However, market bullishness on the prospects of a stronger USD could counterbalance the positive effects of a moderate rate cut on safe haven precious metal assets. 

In other words, many traders anticipate that gold and silver price action to round out the week will be something of a tug-of-war between bullish indicators (rate cuts) and bearish signals (stronger USD).