Is gold no longer viable now that Trump is in office?

Since November, gold prices have fallen from a high of 1,337 to a low of around 1,171, dropping by more than $160—a decline exceeding 12%. This drop is driven by market expectations that Trump’s election will boost inflation and interest rates.

What signals do gold holdings reveal?

According to gold position data released by the U.S. Commodity Futures Trading Commission (CFTC) on Monday (November 28), as of the week ending November 22, non-commercial long positions in gold decreased by 10,575 contracts to 167,085 contracts, marking a second consecutive week of reduction.

Currently, the size of non-commercial net long positions has fallen to its lowest level since March, when spot gold prices were around 1,240. Today, gold prices have already dropped to around 1,190.

Amid consecutive sharp declines, gold investors continue to withdraw from gold ETFs.

As of Monday, November 28, the world’s largest gold ETF, the SPDR Gold Trust, maintained its holdings at 885.04 tons. Previously, the fund had reduced its gold holdings for 16 consecutive trading days, reaching a new low since June of this year. At that time, the spot price of gold was around 1,230.

By comparing gold prices with the magnitude of position reductions, we find that gold prices have already shown signs of overselling. As panic selling subsides in the future, the likelihood of gold prices stabilizing and rebounding is increasing.

Can gold actually be bought right now?

After gold prices have continued to plummet recently, some investors who are bullish on gold have spotted a buying opportunity at these attractively low prices.

A precious metals trader noted that the market has largely priced in the negative impact of the Federal Reserve’s interest-rate hikes, and there is no basis for gold to fall further before the December rate hike. Meanwhile, political risks such as Italy’s constitutional reform referendum have, to some extent, enhanced gold’s attractiveness.

Disruptive Investor, a precious metals analyst, believes investors shouldn't be intimidated by the current downturn. In the medium to long term, gold still holds investment value. Although gold has recently faced some setbacks, there’s no real reason for panic in the medium to long term. Going forward, real interest rates will remain negative, economic uncertainty will persist, and Trump’s election has only heightened business leaders’ concerns—all of which are highly favorable for gold. The recent decline may, in fact, present an excellent buying opportunity.

Caiman Valores, a precious metals analyst, also believes that the market is being overly optimistic about Trump’s plans. There are serious doubts as to whether Trump’s plans will actually be feasible and achieve the desired outcomes in the future. Once the market realizes that Trump’s economic policies won’t deliver the expected results, gold prices will likely rebound.

TD Securities said that the gold price decline in November prompted Chinese buyers to step up their purchasing, making $1,200 a very strong support level. They recommend buying on dips at this level.

However, there are also firmly bearish views. Deng Haiqing believes that for 2017, gold will continue to fall, dropping from its current level of $1,190 back to around the 2016 rally’s starting point of $1,050, with the possibility of falling below $1,000.

Goldman Sachs’s latest outlook has lowered its forecasts for gold over the next three and six months to $1,200 per ounce, citing the impact of continued economic growth and redemptions from gold ETFs on gold prices. However, Goldman Sachs also noted that gold prices are expected to rise to $1,250 per ounce within one year.

Want to copy the golden bottom? First, read these ten reasons.

So, is now really the right time to buy at the bottom? After reading the following ten reasons, you might want to think twice before making a move.

First, don't place too much trust in analysts. Just like at the beginning of the year, banks generally predicted that gold prices in 2016 would be lower rather than higher, and many institutions were bearish on gold, forecasting prices as low as $1,000 per ounce. However, subsequent market trends proved them wrong.

Second, this year’s rise in gold prices has been largely driven by the Federal Reserve’s delay in raising interest rates. However, as the U.S. economy improves, the Fed is now poised to raise interest rates, which will be unfavorable for gold prices.

Third, Trump’s election was seen as positive for gold because it would likely fuel rising inflation. However, since 1980, after adjusting for inflation, gold prices have remained in a bear market. Of course, if you could buy at the bottom, you’d certainly outperform the broader market. But who could possibly time the market with such precision?

Fourth, gold does not generate income, and many gold mining companies can maintain operations at around $1,000 to $1,100 per ounce by reducing their reserves. Now, as OPEC gradually reaches an agreement to cut production, oil prices are expected to rise. This will increase fuel costs for gold mining companies, thereby threatening their profits and dividends. As a result, these gold mining companies will have no choice but to shift from expansion to adjusting their reserves (by selling off gold to increase market supply) in order to achieve balance. This, in turn, will put additional downward pressure on gold prices.

Fifth, gold is considered a defensive investment, primarily used to hedge against stock market risks. However, as stock market risks decline, the rationale for holding gold also diminishes.

Sixth, although the political crisis in Europe could support gold prices, these effects are only temporary.

Seventh, the stock market has already rebounded, and people remain optimistic about the future outlook, meaning they are unlikely to be interested in investing their funds in gold. As shown in the chart below, even after adjustments and corrections, the S&P 500 index still has considerable room for further upside.

Eighth, although oil prices may have bottomed out, that doesn't necessarily mean gold has also reached its bottom. Both assets are currently constrained by their respective supply-and-demand fundamentals.

Ninth, both crude oil and platinum have bottomed out from their declines since 2009, but gold has not yet. Gold prices may not reverse course until they fall to the psychological threshold of $1,000 per ounce; in any case, gold remains in a bear market adjusted for inflation.

Tenth, the Fibonacci indicator shows that gold prices are still between the high and potential low of the previous cycle, implying that there is still room for further declines in gold prices.

As shown in the figure below, from a long-term perspective, the next support level for gold prices lies in the high-range formed at 1980. Therefore, it is not impossible for gold prices to fall by $1,000 per ounce.