By Neils Christensen of Kitco News
Friday November 11, 2016 14:44
(Kitco News) - Heading into the week, expectations were high that a surprise Trump win would be bullish for gold prices; that optimism has been dashed with gold prices ending the week at a five-month low.

gold prices are ending teh week down more than 6% on the week following Donald Trump's surprise election victoryAlthough volatility and uncertainty remain extremely high in financial markets, some analysts are expecting to see lower gold prices in the near-term as markets continue to digest President-elect Donald Trump’s fiscal policies.

Expectations that a Trump presidency will increase infrastructure spending is helping to boost optimism in the industrial metals complex as well as in U.S. equities, while safe-haven assets like U.S. bond yields and gold continue to suffer.

Gold has seen strong selling pressure since mid-week, following the surprise results of the U.S. election, with prices breaking below key support levels. Friday, gold prices settled the week at $1,224.30 an ounce, down more than 6% on the week, its biggest weekly percentage decline since March 2008. Gold prices are also down more than $100 from its Election Night peak of $1338.30 an ounce.

Gold’s rout has impacted silver prices as well, but its industrial component has helped to limit some losses. December silver futures ended Friday at $17.382 an ounce down more than 5% on the week, its biggest percentage decline since last April 2008.

Jessica Fung, precious metals analyst at BMO Capital Markets, said that while she is bullish on gold, she can’t rule out a further drop in the price as markets wait for more policy details from Trump.

“I think what markets are focused on is that Trump’s election win is a change from the last eight years of pitiful growth,” she said. “There is some hope in markets that maybe he can shake things up and put in place pro-growth policies.  But there is still enough uncertainty in markets that gold will continue to go up but maybe not next week.”

Fung added that there could be an opportunity for gold in the near term if markets, next week, switch focus on how a Trump government would pay for his infrastructure plans. If markets expect a potential burgeoning of U.S. debt and higher inflation pressures then gold could start to rally again, she said.

Don’t Forget About The Fed

George Milling-Stanley, head of gold strategy at State Street Global Advisors, said that he is ignoring the “noise” following the U.S. election and instead is focusing on the long-term trend of low interest rates.

In a recent interview with Kitco News, he noted that gold prices could continue to push lower as the market gets closer to the December Federal Open Market Committee meeting.

He also added that the best thing for the gold market would be if the Fed would “get it over with” and hike rates.

“Once we get the rate hike, we will be able to focus on the fact that we will continue to see an extended period of negative to low interest rates and that is good for the gold market,” he said.

CME 30-Day Fed Fund futures are pricing in an almost 82% chance that the Fed will raise interest rates by 25 basis-points by the end of the year. Expectations have jumped almost 10 percentage points from the previous week.

George Gero, managing director at RBC Wealth Management, said that rising bond yields, pushing to their highest level since the start of the year above 2%, \ all but solidifies a rate hike.

Markets will be listening closely to what Fed chair Janet Yellen has to say when she testifies before the Joint Economic Committee Thursday.

Key Level To Watch Next Week

Bill Baruch, senior market strategist at iiTrader.com, said that with prices closing the week below key support at $1,250, he would expect prices to fall to the next support level at $1,211.50 an ounce in the near term.

Chris Beauchamp, market analyst at IG, said that the path of least resistance for gold is lower, adding that $1,200 would be a “natural destination.”

With gold prices blowing through support levels this week, Karen Jones, technical analyst at Commerzbank, said that she is watching to see if support between $1,208 and $1,192 an ounce will hold.

Colin Cieszynski, senior market strategist at CMC Markets Canada, said that while gold is technically oversold, it doesn’t pay to try to step in and buy now.

“This week, we saw a major bear reversal and you just can’t ignore that,” he said.

In the near-term, Cieszynski said that he could see prices testing support around $1,211 and a break below that would put $1,172 in play.

The Final Say

While the world follows the President-elect’s Twitter account to gauge his potential policies, investors shouldn’t ignore a full economic docket.

Next week will see the release of October retail sales numbers, October inflation data and regional manufacturing data and some housing sector data.