The Trump Effect: The election shockwaves hit gold and silver

In the latest Live from the Vault episode, Andrew Maguire explores how Trump’s election victory has sparked volatility in gold and silver markets, highlighting key trends in physical demand and market dynamics.

In the wake of Donald Trump’s victory in the 2024 US presidential election, financial markets have experienced sharp volatility, with gold and silver prices seeing a significant pullback. The initial market reaction has been characterised by a rush into risk assets, pushing stock prices to new highs while triggering sell-offs in precious metals. 

However, as Maguire explains, this sell-off has been driven more by speculative, fiat-based trading than any shift in physical demand, highlighting a growing disconnect between paper gold prices and tangible assets. 

A stronger dollar, fuelled by expectations of a pro-business Trump administration, further pressured gold and silver, as traders moved towards equities in a risk-on cycle.

Yet, with physical demand and central bank buying remaining robust, the stage is set for a potential rally as market dynamics stabilise. As the dust settles, a rally in gold and silver seems increasingly likely, driven by strong physical demand and central bank accumulation.

A strong counterbalance in physical gold

Despite the volatility in paper markets, demand for physical gold remains resilient, says Maguire. Central banks and sovereign institutions are seizing the opportunity to accumulate more gold, especially at discounted prices resulting from speculative sell-offs. 

Russia, India, and other nations, as well as major financial institutions, are building their reserves, signalling a strong long-term view on gold.

This trend underscores a growing decoupling between fiat-driven gold prices and the demand for tangible assets. While automated trading may drive fluctuations, central banks are proving that physical gold remains a critical asset in the global financial system. 

Basel III regulations are also contributing to this shift, pushing institutions to move from leveraged positions to fully funded physical holdings.

The Federal Reserve’s struggles

The Federal Reserve is facing increasing pressure to cover short positions in the wake of rising gold prices. As stricter Basel III rules take effect, the Fed is being forced to transition from speculative, leveraged positions to fully-backed gold holdings, reinforcing the strength of the physical gold market.

At the same time, central banks are capitalising on the discounted prices, purchasing gold while the markets remain volatile. This institutional buying is pushing physical gold premiums higher, further emphasising the ongoing shift away from paper gold trading.

Geopolitical shifts and the BRICS influence

Trump’s victory has also added a new layer of complexity to the geopolitical landscape, accelerating the move away from the US dollar as the global reserve currency. BRICS nations, particularly Russia, China, and India, are increasingly settling transactions in gold, bypassing the dollar and reducing their exposure to US-driven financial systems.

This shift towards a gold-backed alternative is gaining momentum, with central banks increasingly viewing gold as a hedge against geopolitical risk. As Trump’s policies seem to further fuel de-dollarisation efforts, gold’s status as a global reserve asset is becoming even more critical.

Gold’s resilience amid volatility

As the dust settles on the election fallout, Maguire believes that gold and silver markets are positioning themselves for a potential rally. The volatility driven by speculative trading is likely to subside as the physical gold market asserts its dominance. 

With central banks and sovereign nations continuing to buy physical gold at discounted prices, the conditions for a significant price rebound are becoming increasingly apparent.

While the immediate aftermath of Trump’s election has brought short-term volatility to the precious metals market, the underlying fundamentals remain strong.

The increasing demand for physical gold, coupled with strategic central bank buying, suggests that gold might be set for a rally in the coming months, providing a safe haven amidst ongoing global uncertainties.

The opinions, analyses, and predictions expressed by Andrew Maguire in this content are his own and do not necessarily reflect the views, positions, or official policies of Kinesis.

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