Markets are reacting today to the news that Donald Trump has secured a second term as President of the United States. Despite months of polls suggesting a close battle, the Republican candidate looked a clear victor as the night progressed, and also saw Trump win the popular vote.
The dollar has climbed higher on the news, with the US dollar index jumping 1.8% in the past 24 hours. Trump’s victory is seen as inflationary, with stimulatory tax cuts and tariffs on international trade both seen as likely to drive prices higher. Higher inflation would likely slow down the pace of the Federal Reserve’s rate cuts, and this is helping the dollar to rally.
Due to the stronger dollar, gold has seen prices pull back from recent highs. Having hit a new all-time high in USD of $2,792.70 last week, gold has now fallen to hover around $2,700, losing 1.4% in the past 24 hours alone. The dollar’s strength has cushioned the fall in the gold price for other currencies however, with gold at £2,100 (down 0.4%) in GBP, and €2,520 (up 0.5%) in Euros.
It will take some time for the dust to settle on the election results and the transition to Trump’s inauguration in January 2025, before the outlook will become clearer. Markets are seemingly confident of higher inflation however, and a return to a more isolationist policy over trade for the next four years.
Tomorrow will also see the Fed’s next US interest rate decision announced, and a cut is still expected. Markets see a 97.4% chance of the Fed easing by a smaller 25 basis points compared to the previous 50 basis point cut according to the FedWatch tool. A further cut is also still expected in December’s meeting currently, but markets could soon shift opinion if Trump’s policies do result in higher inflation.
President Trump’s first victory in 2016 saw a similar pattern, with the gold price falling after the vote, but rising steadily over the course of his first term. The President will face a more divided and challenging world-stage however, particularly with geopolitics. Events in Ukraine and the Middle East, as well as ongoing tensions with China will require Trump’s attention, and his non-traditional political style will be put to the test.
A stronger dollar will continue to put pressure on gold in the short-term, but the real work will begin in January 2025 for President Trump on his return to the White House.
