Gold fell more than 1 percent on Thursday after the dollar rose to a 3-1/2 month high against the yen, as markets weighed the election of Donald Trump as US president and how his policies could affect economic growth. Trump's plans call for infrastructure building and massive tax cuts which could increase the US budget deficit and help support gold. His victory has also called into question the expected US interest rate increase in December.
But the Republican president-elect has also vowed to boost growth in the US economy which could boost the dollar and in turn hurt gold, which is priced in the US currency. Spot gold was down 1.5 percent at $1,258.90 an ounce by 3:00 p.m. EST (2000 GMT), after touching $1,258.06, its lowest since Oct 18. US gold futures settled down 0.6 percent at $1,266.40.
"In general markets are cheering, they are buying into story that President Trump will boost fiscal spending and will get growth up," Danske Bank senior analyst Jens Pedersen said. Gold is highly sensitive to rising rates. A rally in major world stock markets lost some steam while US bond yields continued to climb on fears of a revival in inflation under Trump's fiscal policy.
Trump has pledged to tear up or renegotiate international trade deals, which could unleash a wave of protectionism. "There was no real discussion about hard policies and how these things are going to be paid for," said George Milling-Stanley, Head of Gold Strategy at State Street Global Advisors, referring to Trump's campaign. Gold rose nearly 5 percent to a six-week high on Wednesday, after Trump's victory was announced, but sharply pared gains.
Goldman Sachs analysts said in a note that while higher uncertainty warranted an allocation to gold from a portfolio construction perspective, "the tactical outlook remains mixed." In other precious metals, spot platinum fell 2.8 percent to $970.99 an ounce, after tapping $966, the lowest since Oct. 28. Palladium, on the other hand, rose for the fifth straight session, up 2 percent to $691 after tapping the highest since Oct. 5 at $697.50. "Platinum's fundamentals are not as tight as palladium," said James Steel, chief metals analyst for HSBC Securities. Silver was up 0.4 percent at $18.55 an ounce.