International Gold Prices Experience Wild Swings: A Tug-of-War Between Geopolitics, Fed Policy, and Digital Currencies

International Gold Prices Experience Wild Swings: A Tug-of-War Between Geopolitics, Fed Policy, and Digital CurrenciesRecent volatility in international gold prices has been dramatic and unpredictable, resembling a rollercoaster. From a six-day slump following Trump's election win, pushing prices below $2540 per ounce, to a significant surge on November 15th, reaching a high of $2723 per ounce, and then a sharp decline on November 25th due to easing risk aversion, closing at $2626

International Gold Prices Experience Wild Swings: A Tug-of-War Between Geopolitics, Fed Policy, and Digital Currencies

Recent volatility in international gold prices has been dramatic and unpredictable, resembling a rollercoaster. From a six-day slump following Trump's election win, pushing prices below $2540 per ounce, to a significant surge on November 15th, reaching a high of $2723 per ounce, and then a sharp decline on November 25th due to easing risk aversion, closing at $2626.4 per ounce (a 3.38% drop), each fluctuation has captivated global investors. At the time of writing, gold is trading at approximately $2622 per ounce. This recent price plunge, and the overall volatility, are the result of several intertwined factors, with geopolitical tensions, the Federal Reserve's monetary policy, and the rise of digital currencies playing significant roles.

Easing Geopolitical Tensions: Anticipated Ceasefire Between Israel and Lebanon

The significant drop in gold prices on November 25th was primarily attributed to the anticipated ceasefire agreement between Israel and Hezbollah in Lebanon. Israel's ambassador to the UN stated that a ceasefire was imminent, confirmed by the US. Israel subsequently announced a cabinet meeting on Tuesday to discuss the ceasefire, while Lebanon's deputy parliament speaker revealed specific terms. He Yi, an analyst at Chuangyuan Futures, noted that the rising expectation of a ceasefire led to significant volatility in related asset prices, with gold (a safe-haven asset) experiencing a sharp decline. The dollar, Bitcoin (assets with some safe-haven characteristics), and even the shipping index futures (which hit the limit down) also saw substantial drops. However, the ultimate success of the ceasefire hinges on the Israeli cabinet's vote. The International Criminal Court previously issued arrest warrants for Israeli Prime Minister Netanyahu and Defense Minister Gallant. While Israel and the US oppose the warrants, the EU considers them binding, undoubtedly pressuring the Israeli leadership and potentially pushing them towards negotiations.

However, He Yi emphasized the ongoing uncertainty in the long-term relationship between Israel and Iran. Iran's vow for retaliation against Israel suggests that relations won't improve in the short term. Wang Jishuai, deputy director of the Zhongzhou Futures Research Institute, further pointed out that while the conflict between Israel and Hamas has cooled down temporarily, the Iranian nuclear issue is laying the groundwork for future tensions. Iran's enhanced nuclear capabilities could lead to increased military deployments by Israel and Saudi Arabia, and even the possibility of a preemptive Israeli strike on Iranian nuclear facilities. The complex interplay of interests of major powers like the US and Russia in the Middle East, coupled with the Iranian nuclear issue, could exacerbate competition among regional and international forces, further destabilizing the region. These geopolitical risks remain crucial factors influencing international gold prices.

Shifting Expectations of Fed Rate Cuts: The Trajectory of the US Dollar Index and Treasury Yields

On November 25th, the US dollar index and Treasury yields both fell, but this failed to provide sufficient support for gold prices. During Trump's election win, amid concerns about escalating trade conflicts, international gold prices rose in tandem with the dollar and Treasury yieldsa phenomenon dubbed the "Trump trade." Now, however, this "Trump trade" appears to be reversing. Xu Yaxin, dean of Jiangxin Academy, suggests that Trump's nomination of billionaire Scott Besent as Treasury Secretarywho advocates a "3-3-3" policy (reducing the budget deficit to 3% of GDP by 2028, achieving 3% GDP growth through deregulation, and increasing daily oil or equivalent energy production by 3 million barrels)if successful, could stabilize the US Treasury market, thus putting downward pressure on gold prices.

However, He Yi notes that Besent's appointment still requires Congressional approval, and the exact date of his assumption of office is uncertain. The likelihood of Powell remaining Fed chair until 2026 is high, and recent US economic data, particularly weekly employment figures, remain robust, reflecting a healthy job market. The market is awaiting the December non-farm payroll report and inflation data. He Yi mentions that recent statements from Fed officials have been mixed, with a generally hawkish stance last week reducing expectations of a December rate cut, but more dovish comments on November 25th increasing those expectations. Whether a rate cut happens in December will depend on the December non-farm payroll and inflation data; current market probability for a rate cut stands at 61%.

Trump's Favorable Stance on Virtual Currencies: Shifting Capital Flows

It's noteworthy that Trump seems to favor virtual currencies more than gold, mentioning it less frequently. Xu Yaxin believes Trump's positive attitude towards virtual currencies and relative indifference to gold have influenced market capital flows and international gold prices. Trump, during his campaign, clearly stated his intention to create a favorable policy environment for the virtual currency industry, even claiming he would fire SEC Chair Gary Gensler, who is skeptical of cryptocurrencies, on his first day in office. Following Trump's election victory, cryptocurrencies like Bitcoin have reached new highs, indicating continued capital inflow into the virtual currency market. This significantly reduces support for the traditional safe-haven asset, gold, suppressing gold price increases and even leading some long gold positions to close for profit.

Huang Jingwen, former director of strategic planning at the Chicago Mercantile Exchange, points out that Bitcoin's price has doubled in the past three months, and Trump's claim of creating a national digital currency reserve further fueled price increase expectations. Investors shifting funds from gold to digital currencies is another factor driving the gold price correction. He Yi also notes that rising prices of cryptocurrencies like Bitcoin can lead to a siphon effect, diverting capital from traditional safe-haven assets to virtual currencies, putting pressure on the prices of those traditional assets. However, gold and Bitcoin have their own strengths and weaknesses. Gold's advantages include stable supply, high credibility, inherent monetary attributes, and price stability, but it's inconvenient to carry and divide, and there's a possibility of impurities. Bitcoin and other virtual currencies offer advantages like digitalization, portability, and easy divisibility, but lack sufficient credit backing and experience extreme price volatility.

Long-Term and Short-Term Outlook: Gold Price Trends Amidst Intertwined Factors

International gold prices saw a substantial 88% increase between 2019 and 2024, rising from $1450 per ounce to $2753 per ounce by the end of October. Over those five years, gold experienced five significant price surges and four deeper pullbacks. Huang Jingwen points out that the 2020 pandemic, the 2022 Russo-Ukrainian war, and persistent high inflation in the US all drove gold prices higher, demonstrating gold's safe-haven function. The Middle East conflict in mid-October 2023 also pushed gold prices up again, and the significant Fed rate cuts in 2024 prompted a new gold price rally.

Recently, volatility in international gold prices has noticeably increased, especially after Trump's inauguration. He Yi advises investors to make decisions after gold prices stabilize. He believes that due to US debt issues and geopolitical factors, gold still has room for upward movement in the medium to long term. For ordinary investors, he suggests purchasing physical gold, gold funds, and bank savings products through reputable institutions, and buying in installments during price corrections.

Xu Yaxin believes that gold prices will be disturbed by various factors in the short term, and it's possible that prices could retest the November 14th low of $2536 per ounce. Historically, around December 25th, gold prices often fluctuate within this range and form a bottom. From a medium-term perspective (1-2 years), it's highly likely that gold prices will surpass the October 31st high of $2790 per ounce and potentially even reach $3000 per ounce.

Short-term bearish factors for gold include: the Israel-Lebanon talks, weakening expectations of a December rate cut, the new US administration's strong dollar policy, and the capital siphon effect from Bitcoin's surge. Short-term bullish factors include: potential Iranian retaliation against Israel, failure of the Israel-Lebanon talks, and escalation of the Russo-Ukrainian conflict. Due to the interplay of short-term bullish and bearish factors, gold prices are likely to experience wide fluctuations. In the medium to long term, the outlook remains bullish due to the US debt problem, geopolitical uncertainties, and central bank gold purchases.