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The impressive year-to-date rally in gold has seen a temporary dip following the recent US election results, according to a World Gold Council report.
A mix of stronger bond yields, a rising US dollar, and growing investor confidence in stocks and cryptocurrencies have cooled off gold's momentum. The election outcome has also eased some geopolitical tensions, which could further dampen gold's appeal as a safe haven. Before the election, there was speculation that US Treasury yields and the dollar had peaked and that a weaker dollar might follow, potentially lowering yields. However, the election brought about a quick reversal in both. The dollar surged as the euro and yen fell sharply, while bond yields also spiked, driven by expectations that inflationary policies from the Trump administration--like tariffs, tax cuts, and infrastructure spending--could raise government debt and stimulate inflation. This rise in bond yields reflects investors' demands for higher returns on US Treasuries. Meanwhile, the election has boosted cryptocurrency appeal, as the incoming administration seems open to pro-crypto policies. Additionally, equity markets, particularly tech stocks, received a boost from anticipated business-friendly policies. Despite these pressures, several fundamental factors still support gold. Even as gold prices face headwinds, they continue to be influenced by Asian markets, where investor demand has remained high. China's declining CSI300 index, combined with inflationary policies in the US, could further support gold demand. Also, the ongoing fiscal policies are expected to add to inflation pressures, supporting the case for holding gold. Looking ahead, while the US election results and rising yields present near-term obstacles, gold remains resilient due to broader concerns. Rising protectionism, high valuations in equity markets, and cryptocurrency's still limited appeal as a replacement for gold all point to a supportive backdrop for gold in the long term. Though gold has taken a breather, it's likely to remain an essential asset in a world with rising inflation, ongoing conflicts, and concentrated stock markets. (ANI)
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