Trump and falling inflation push gold to a new all-time high

Since hitting an all-time high in May, gold prices had stabilised somewhat. That all changed this week as the increased prospect of a Trump presidency and weaker inflation figures sent the precious metal soaring, hitting a new all-time high of 2,482 USD on Wednesday, July 17th.

Gold had already been gaining in value off the back of last week’s weaker inflation figures. The precious metal climbed further following the assassination attempt on former President Donald Trump over the weekend, which boosted his chances of a second Presidency.

Trump’s economic programme for the United States is expected to lead to a weaker dollar and greater market volatility. The New York Times reported on Wednesday that Trump, in a meeting with House Republicans last month, expressed support for tax reductions, lower interest rates, and increased tariffs. These measures could be inflationary for the economy and weaken the dollar, which may, in turn, boost the demand for dollar-denominated gold.

In addition, Trump’s tariff plans and tax-cutting agenda are expected to inflame geopolitical tensions, especially with China and the EU. This could fuel longer-term inflationary pressures and burnish gold’s safe-haven appeal.

The prospect of a Trump victory is also expected to incentivise further gold purchases by central banks despite high prices, as “an acrimonious relationship between the US and China” spurs them to continue to seek alternatives to the dollar, according to Bernard Dahdah, an analyst at French bank Natixis. “I wouldn’t be surprised if 2,300 and above becomes the new normal,” he said.

Investors also fear Trump’s desire for lower interest rates could undermine the Fed's independence.

Gold’s recent rise has also been driven by bets that the Fed will lower borrowing costs faster than previously expected. Last week’s faster-than-expected fall in inflation provided a further boost. Markets are now pricing in three rate cuts by December, compared with just two last week.

Federal Reserve officials have expressed increasing confidence that the pace of inflation is now more aligned with the Fed’s goals. On Wednesday, Fed Governor Christopher Waller said the US central bank is ‘getting closer’ to an interest rate cut. Meanwhile, Richmond Fed President Thomas Barkin stated that easing in inflation had begun to broaden, and he would like to see it continue.

Thursday’s jobless claims were higher than expected, showing a continued economic slowdown and supporting the Fed’s dovish stance. With interest rates now likely to come down at least twice and possibly three times this year, and Biden’s bid for a second term looking weaker than ever, gold prices are likely to remain elevated, and it would be a surprise if this was the last all-time high set in 2024.

Technical Analysis

Having surpassed its previous all-time high on Tuesday, the price of gold has continued to soar, reaching its peak on Wednesday at the 2483 mark. Having experienced consolidation today, the precious metal has dipped below oversold territory, as indicated by the relative strength index, which sets it up for further upside moves.

This bullish bias is confirmed by price moving high above all three exponential moving averages, and the ascending channel. Price is testing the upper boundary of the channel, which, if breached, could see a swift move towards the 2,500 psychological level.

Any downside moves could bring the 2,424 dollar level into focus, which corresponds with the lower channel line and Tuesday’s opening price. Below that, the 2,352 level, at the 50-day EMA (blue), could act as strong support.