Gold has sure had a wild ride in the several weeks since the US elections! It first plunged then surged after Trump’s decisive victory, which surprised legions of traders. Gold’s earlier big down days helped fuel fears another Trump administration is bearish for gold. Its poor performance after Trump’s first win eight years ago buttresses that case. But that’s probably not predictive in today’s wildly-different environment.
On Election Day 2024, gold closed at $2,743. That was just 1.5% under its latest nominal record high achieved four trading days earlier. But the next day when Trump’s big win was already apparent, gold plunged 3.0%. That was its worst day by far since a 3.6% plummeting in early June on a huge US-jobs upside surprise, which in turn was gold’s biggest daily loss in 3.6 years. Then more post-election selling came.
By Friday the 15th eight trading days later, gold had plunged 6.6% since Election Day. That extended its total selloff since late October to a big-and-sharp 8.0% pullback. Bearishness flared on that, and I heard from plenty of newsletter subscribers worried gold was following the post-2016-election script the last time Trump won. That’s understandable and certainly worth considering, as gold didn’t fare well eight years ago.
On November 8th, 2016, Donald Trump beat Hillary Clinton to become the 45th president of the United States. He won 304 electoral votes to her 227, but lost the popular vote 46.1% to 48.2% with 63.0m Americans electing him. Gold closed at $1,276 that Election Day, then suffered sizable selling in its wake. Eight trading days later, gold had fallen 5.2%. And selling continued from there, hammering gold much lower.
By late December 2016 just over six weeks after Trump’s win, gold had fallen 11.5% in that span. That extended a larger correction since early July that year to 17.3%, threatening new-bear territory. Gold did start recovering from there rather than rolling over more, but a year later well into Trump’s first term it had only eked out a 0.4% gain since elections. The leading GDX gold-stock ETF slumped to a 4.5% annual loss.
Considering this history, and gold initially tracking 2016’s post-election precedent after Election Day this year, it’s easy to see why plenty of traders are worried about gold’s fortunes under Trump’s second term. But this superficial analysis ignores the broader context surrounding gold’s moves. Gold’s price action largely results from several major drivers interacting, and today’s setup is wildly-different from eight years ago.
Gold’s two dominant primary drivers are speculators buying and selling gold futures and investors’ capital inflows and outflows. These two groups of traders have very-dissimilar focuses and time horizons. Gold-futures trading allows crazy-extreme leverage, running as high as 22.9x mid-week! At those levels a mere 4.4% gold move against positions wipes out 100% of capital risked, forcing an ultra-myopic worldview.
Those guys can’t afford to be wrong for long, so they only care what gold is likely to do in hours, days, or maybe weeks. Gold-futures speculators watch the US dollar’s fortunes for their main trading cues, then usually do the opposite. They tend to aggressively buy when the dollar weakens substantially, and rush to sell on material dollar strength. Gold futures’ huge leverage gives them proportionally-outsized gold influence.
At 23x, every dollar traded in gold futures has 23x the price impact on gold as a dollar invested outright! So though the overall capital deployed in hyper-risky gold futures is quite small, it punches way above its weight. Specs’ gold-futures trading often proves the tail wagging the gold-price dog, influencing how even investors view gold’s prospects and thus their capital flows. Investors naturally have far-longer time horizons.
While spec gold-futures positioning is reported weekly, comprehensive global gold fundamental data is only published quarterly by the World Gold Council. But the combined holdings of the mighty American GLD and IAU gold ETFs, which dominate global ones backed by physical gold bullion, are often a good proxy. The WGC’s latest Q3’24 data revealed GLD and IAU command 39% of the world’s gold-ETF bullion!
So understanding how gold fares after Trump wins not only involves its prices, but specs’ gold-futures trading on both the long and short sides, the benchmark US Dollar Index’s fortunes often driving that, Fed-rate-trajectory expectations which fuel material dollar moves, capital inflows and outflows into GLD and IAU as evidenced by their gold-bullion holdings, and gold’s degree of overboughtness and oversoldness!
I’ve been racking my brain trying to coherently distill all that into a pair of charts covering each Trump win, but failed to figure it out. So rather than risk getting bogged down in a half-dozen-plus charts, I’m going all-text this week. For our purposes today, the high-level interaction among all these key gold drivers is more important than their individual detail. Gold’s setups surrounding both elections couldn’t be more different.
Back in early July 2016 four months before Trump’s first win, gold had blasted to $1,365 for the first time ever. That was driven by a combination of spec gold-futures buying on a weakening USDX and American stock investors buying GLD and IAU shares faster than gold was being bought. Gold’s strong run then included an enormous 4.8% up day, and stretched gold to extremely-overbought levels 1.152x its 200dma!
Speculators were all-in gold futures, holding 440.4k long contracts which was then a record! Their shorts were very low too at 100.2k. Since gold-futures trading is so incredibly-risky, the traders and capital in that realm are very finite. Once spec gold-futures positioning grows too extreme, major mean reversions back the opposite ways are inevitable. So huge gold-futures selling hit both before and after 2016’s elections.
Again speculators’ gold-futures contracts held are reported weekly. Huge moves in longs or shorts start at 20k contracts in a single week. In early and mid-October 2016, total spec longs plummeted 33.0k and 42.0k contracts! Then in mid-November in the week immediately after Trump’s first victory, spec longs cratered an even-huger 45.9k contracts! That epic long liquidation was fueled by a surging US dollar.
The USDX blasted up 3.4% in the eight trading days after 2016’s elections, a big move for the world’s reserve currency. Traders were flocking to the US dollar because the Fed was increasingly signaling it would soon resume its interrupted rate-hike cycle. Back in mid-December 2015, the FOMC had hiked rates for the first time since way back in June 2006, finally slaying its 7.0-year-old zero-interest-rate policy!
Then Janet Yellen was running the Fed, a lifelong Democrat partisan. And the Fed is overwhelmingly Democratic, with over 90% of its current 400+ PhD economists registered Democrats! Fed officials prize central-bank independence above all else, and Republican lawmakers have questioned that over the years. So Yellen held off on hiking rates again for an entire year, trying to boost Clinton’s odds of winning in 2016.
Trump’s first win that November was considered one of the biggest political upsets in US history, with way-lower expectations he’d pull it off than in 2024. Once he prevailed, the Fed no longer had to worry about how rate hikes would affect voters’ perceptions of the US economy with Democrats in power. So Yellen and crew hiked rates a second time in that cycle in mid-December 2016, telegraphing that since elections.
That Yellen Fed would hike three more times in 2017, then another four in 2018! Gold was staring down the barrel of a major Fed-rate-hike cycle after Trump’s 2016 win. Traders really worried about that, despite the fact gold thrived through hiking cycles historically. After that election, Republicans regaining power unleashed the Democratic Fed to hike aggressively. Thus investors fled gold along with gold-futures specs.
Between gold’s early-July-2016 peak and Election Day that year, GLD+IAU holdings stayed very stable merely edging 1.2% lower to 1,180.7 metric tons. American stock investors weren’t worried about that paused Fed-rate-hike cycle with Obama still president and Clinton universally expected to win. But once the underdog Trump prevailed, rate-hike fears exploded given the Fed’s history of political monetary policy.
So from Election Day to the Fed’s second rate hike of that cycle in mid-December, GLD+IAU holdings suffered a major 11.4% or 134.9t draw! American stock investors were selling gold-ETF shares way faster than gold itself was being sold. That forces gold-ETF share prices to decouple from gold’s to the downside, failing their tracking mission. So ETF managers sell gold bullion to use the proceeds to buy shares.
That sops up excess supply, keeping gold-ETF prices mirroring gold’s own. Investors’ frightened exodus from gold started just two days after Trump’s first win, when GLD+IAU holdings suffered a series of big 1.4%, 1.1%, and 1.0% daily draws! Those persisted with a 1.2% one in late November and another 1.4% one in early December. Selling begets selling, driving gold lower multiplying worries triggering more selling.
Interestingly the dust didn’t settle on American stock investors fleeing gold until late January 2017, when the total GLD+IAU-holdings draw since Election Day extended to 15.5% or 183.3t! Specs aggressively dumped gold futures in that span too, with total longs collapsing 89.2k contracts while total shorts climbed 24.5k. But again all that centered around Fed-rate-hike expectations and a resulting surging US dollar.
Higher rates are bullish for the dollar because they increase yields on dollar-denominated bonds relative to major-currency competitors. Between Election Day 2016 and just after the Fed’s second hike of that cycle in mid-December, the USDX blasted 5.3% higher! The gold action after Trump’s first win resulted from the Fed’s first rate-hiking cycle accelerating after seven long years of ZIRP, it wasn’t a Trump thing.
Fast-forward eight years, and top Fed officials are again waxing way more hawkish than they were a month ago when traders generally expected Harris to win. The Democratic Fed is way more likely to hold rates low or cut during Democrat administrations, and way more likely to keep rates high or hike during Republican ones. So the expected Fed-rate trajectory has again shifted since Trump’s second win this month.
According to betting markets, Trump’s odds of winning in November 2024 hit their low ebb around late September. That’s also right when the USDX slumped to a 14.2-month low of 100.4. In the middle of that month, futures implied traders were expecting 110 basis points of Fed rate cuts in the rest of 2024 along with another 126bp next year! That was nine-plus 25bp rate cuts over eleven FOMC meetings by year-end 2025.
In mid-September leading into elections, the political Fed not only executed its first rate cut in 4.5 years but made it a crisis-level 50bp one! That outsized cut certainly wasn’t justified economically, but it would goose stock markets. When they rally in the final few months before voting, Americans feel better about the economy really upping the odds the incumbent party will retain the presidency. So a cutting cycle was born!
Yet as Trump’s betting-market odds of winning again surged in October, so did the USDX. In just a month out of those lows, it soared 4.0%! The main reason was if Trump managed to pull off a victory, the Democrat-dominated Fed was less likely to cut rates as aggressively. It certainly wouldn’t start hiking, but it could dramatically slow its new rate-cut cycle. So expected Fed rate cuts already collapsed by Election Day.
They ran 39bp more in 2024 on top of that maiden 50bp cut, followed by another 66bp in 2025. That was the equivalent of just six 25bp cuts total, down by over a third since Harris’s chances of winning looked highest! The FOMC cut another 25bp two days after this year’s elections, but this week only 71bp more cuts were priced in by year-end 2025 on top of the 75bp so far. That makes for 146bp total, a massive drop.
Again back in late October, fully 236bp of cuts were priced in over that span! So though gold certainly isn’t facing an accelerating rate-hike cycle like eight years ago, it is definitely contending with fewer cuts driving the dollar higher. That more-moderate rate trajectory under Trump than had Harris won really amplified dollar buying after 2024’s results were in. Trump’s second victory proved way more decisive.
He had already won the morning after Election Day, securing 312 electoral votes to Harris’s 226. Trump also won the popular vote 50.0% to 48.4%, with a way-higher 76.9m Americans selecting him to be the next president! That surprised so many traders the USDX soared 1.6% higher the day after elections this year, its biggest up day since March 2020’s pandemic-lockdown stock panic! That’s why gold plunged 3.0%.
One of gold’s biggest down days in years right after Trump won again kindled all these 2024-to-2016 gold comparisons. And there are some parallels. Gold had just surged to extremely-overbought levels way up at 1.183x its 200dma in late October. And spec gold-futures longs had soared way up to a near-record 441.0k contracts in late September, a hair over July 2016’s extremes. So gold was overdue for another selloff.
I warned about this extensively before the elections, even dedicating an entire essay to gold’s high selloff risk in early October. With gold so exceedingly-overbought and spec gold-futures longs so extremely-overextended, we ratcheted up the trailing-stop-loss percentages in our newsletter gold-stock trades to lock in more of our big unrealized gains. A sizable-to-big gold selloff was looming with or without elections.
Interestingly enormous gold-futures mean-reversion long dumping erupted the week before elections, when specs jettisoned a colossal 30.6k longs! That ranked in the top 3.1% of all weeks since early 1999. Yet in the week immediately following Trump’s second win, specs’ gold-futures long selling was almost cut in half to 16.4k despite gold’s huge 3.0% down day. The week after, long selling moderated again to 11.3k.
Two weeks of speculators’ gold-futures-positioning data has been reported since 2024’s elections, with 27.7k longs sold. The first three weeks after 2016’s saw a way-larger 65.6k dumped! So speculators are not fleeing gold futures anywhere near like they did eight years ago. And they shouldn’t, as no rate-hike cycle is looming. While the expected pace of cutting has moderated, we’re still in a young Fed-rate-cut cycle.
At best since Election Day, the USDX has surged 3.9% as of last Friday. That’s right in line with the 3.8% eight years ago over a similar post-election timeframe. Yet not only has specs’ gold-futures selling been way smaller, so has investors’ according to GLD+IAU holdings. Following Trump’s second win, there was a six-trading-day streak of draws. But they were small, 0.3% at worst with all totaling just 1.0% or 13.1t.
Again after 2016’s elections, GLD+IAU suffered major daily draws as big as 1.4%. In the first six trading days after Trump’s first win, they had already plunged 3.8% or 44.3t! And that mass exodus from gold-ETF shares with Fed rate hikes threatening would continue. By 16 trading days later which is where we are mid-week today, GLD+IAU holdings had collapsed 9.3% or 109.8t after November 2016’s Election Day!
Investors weren’t fleeing because they were worried about Trump’s tax cuts or tariffs, but because they knew the Democrat-dominated Fed was likely to aggressively hike rates with a Republican administration bearing the consequences. This time around all they have to fear is slower cuts, not hikes. So stunningly in the comparable 16 trading days after 2024’s elections, GLD+IAU holdings have actually fully recovered.
Since Trump’s second win, GLD+IAU holdings have edged up 0.3% or 3.6t! That’s a stark contrast to the huge draw by this point after his first win. On the seventh trading day after these latest elections, GLD+IAU holdings builds resumed on differential buying. That initially started on the IAU side, which professional institutional investors tend to favor over GLD due to IAU’s lower annual percent-of-assets fees of 0.25%.
While GLD is over twice as big and way more popular, it charges 0.40% per year. So gold investment demand quickly recovered and resumed climbing this month with Trump 2.0 nearing, despite similar big US-dollar gains as eight years ago! This psychological environment for gold is way different looking at slower rate cuts than fearing a looming hiking cycle. Gold’s powerful bull-market upleg remains alive and well.
Despite 2024’s sharp post-election pullback that was overdue anyway, gold again merely retreated 8.0% at worst. That cut away all gold’s extreme overboughtness, dragging it back from 1.183x is 200dma in late October to just 1.071x at its nadir on the 15th! Since then gold has bounced 5.7% higher at best in a sharp recovery. Mid-week it was down 3.9% since elections, compared to 8.1% at this point eight years ago.
Trump returning is actually quite bullish for gold, even without more Fed rate cuts. He wants to extend big tax cuts from his first term and pass new ones. American taxpayers having more money to spend will increase inflationary pressures, bidding up prices on goods and services. And big tariffs on imports will also force prices higher before supply chains adjust, which can take years. Higher inflation is bullish for gold.
Given these wildly-different setups leading into Trump’s first and second terms, it’s pretty irrational to worry gold’s post-2024-elections price action will follow post-2016-elections’ precedent. The recent gold selling has already proved short-lived, and offers a great opportunity to load up on bargain gold stocks. They got sucked into gold’s post-election selloff, yet have epic fundamentals as they achieve all-time-record profits!
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The bottom line is gold’s behavior after Trump’s second win has already proven nothing like after his first eight years earlier. Back then the Fed was ramping up its first rate-hike cycle in about a decade, driving the US dollar higher and hitting gold. That helped fuel a mass exodus by both gold-futures speculators and American stock investors, pounding gold much lower. That setup was wildly-different than today’s.
Rather than hiking, the Fed is now engaged in a young cutting cycle. While the rate-cut pace will likely be slower under Trump, that’s still a far cry from hiking. So spec gold-futures selling has been way smaller since elections. And American stock investors quickly resumed differential gold-ETF-share buying after initial kneejerk selling, leaving GLD+IAU holdings higher since Election Day! Gold’s Trump-2.0 outlook is bullish.
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