Gold prices have tumbled following the recent U.S. elections, suffering their steepest post-election weekly decline since 1980.
The precious metal’s value fell 6% in just one week, a sharp drop driven by multiple factors, according to UBS analysts.
The sell-off came amid rising expectations of stronger U.S. economic growth and tighter monetary policy after the election, which boosted the U.S. dollar and pushed long-term bond yields higher.
UBS strategists point to three key factors behind this dramatic decline. First, the spread on U.S. high-yield credit rates narrowed significantly. Second, the CBOE Volatility Index (VIX) dropped to its lowest level since July.
These changes reflect a reduced appetite for safe-haven assets like gold, as improved investor confidence in the U.S. economic outlook gained momentum.
Second, the rally in the U.S. dollar—driven by robust economic data and expectations of fiscal stimulus under the incoming administration—posed a challenge for gold, which typically moves inversely to the dollar.
Finally, rising U.S. interest rates, fueled by expectations of inflationary policies, further eroded gold’s appeal.
Despite the short-term negativity, UBS remains optimistic about gold’s long-term prospects, citing ongoing geopolitical uncertainties and dedollarization efforts by central banks as potential drivers of renewed demand.
UBS forecasts gold to reach $2,900 per ounce by the end of 2025, highlighting its confidence in the metal’s durability amidst an uncertain economic environment.
The brokerage suggests a tactical investment strategy, encouraging investors to view market dips as strategic buying opportunities, especially as prices approach the $2,500 support level.
UBS recommends holding a 5% allocation to gold in a diversified portfolio as a hedge against potential economic disruptions.
This decline contrasts sharply with pre-election predictions, which had anticipated gold to perform well regardless of the election’s outcome.
However, with the dollar strengthening due to “U.S. growth exceptionalism” rather than “risk-off” sentiment, gold’s traditional role as a safe-haven asset has been temporarily overshadowed.
