Post-Election Volatility: Gold Remains Attractive Opportunity for Long-Term Investors

• Gold prices fell sharply after Donald Trump's victory in the 2024 US presidential election, but started to rebound following a 25 basis point rate cut from the Federal Reserve.
• The US dollar surged to a 4-month high in the immediate aftermath of Trump's win, putting pressure on gold and other commodities.
• Fed Chair Jerome Powell said the election outcome will not influence near-term monetary policy decisions, emphasized the Fed's independence, and stated he would not resign if asked by Trump.
• If Trump follows through on campaign promises of higher tariffs, mass deportations, and other inflationary policies, it could complicate the Fed's efforts to contain inflation.
• Analysts believe gold's post-election drop was a knee-jerk reaction and see the long-term bull case for the metal remaining intact. Though near-term volatility is to be expected, the underlying fundamentals supporting gold's long-term bull market remain firmly in place.

2024 US Presidential Election: Why Gold is an Attractive Investment

The 2024 US presidential election has concluded with former President Donald Trump emerging victorious over incumbent Vice President Kamala Harris. The outcome has significant implications for the economy, monetary policy, and financial markets, including the precious metals complex. Gold, in particular, experienced volatility in the immediate aftermath of the election but rebounded following the Federal Reserve's latest interest rate decision. Despite near-term fluctuations, the long-term investment case for gold remains compelling.

Gold's Post-Election Trajectory

In the wake of Trump's election night victory, the price of gold sharply declined, falling 2.8% to a three-week low of $2,652.19 per ounce^[2]. This knee-jerk sell-off was driven mainly by a strong rally in the US dollar, which jumped over 1.5% to a four-month high as investors bet on faster economic growth and higher interest rates under a second Trump administration.

However, gold quickly found its footing and reclaimed the $2,700 level ahead of the Federal Reserve's November meeting. The central bank announced a widely anticipated 25 basis point cut to its benchmark interest rate, marking the second reduction in as many months. Gold gained further ground following the rate cut, with spot prices rising 1.2% to $2,691.36 per ounce^[3].

Analysts Remain Bullish on Gold's Prospects

Despite the short-term volatility surrounding the election, many analysts maintain a positive outlook for gold. Rhona O'Connell of StoneX attributed the metal's initial drop to a "risk-on moment" as investors celebrated Trump's win, rather than any diminished relevance for gold and silver as investment and diversification tools:

"A clear presidential victory when the market has been pricing in a contested result, removal of an element of risk, Trump trades include the dollar's strengthening this morning, and the combination of the two has brought gold lower," - StoneX' Rhona O'Connell ^[2]

John Feneck of Feneck Consulting echoed this sentiment, characterizing gold's decline as a "knee-jerk reaction" to the election outcome. He noted that the surge in the US dollar, which has an inverse relationship with gold, was the primary culprit behind the sell-off. However, Feneck emphasized that the underlying bull case for precious metals remains intact.

"What happened was you had a risk-on moment; it wasn't that gold and silver were no longer relevant; it was simply that people were celebrating Trump's victory. The US dollar rallied sharply, up about 1.5-1.6 per cent, and when you have a huge move up in the dollar, typically, you'll have a move down in gold and silver. It's just a counter-relationship for many years if you go back and look at charts." ^[5]

Joe Cavatoni of the World Gold Council expounds to look six months down to see the election's impact on gold:

"Where the election will have an impact (for gold) is on how policies will develop. That tends to show itself up six months or so post an election outcome when policies can be discussed, clarified and potentially start to be implemented. And that's why we think that six months into the election outcome is when you will start to see more of an effect on the gold price."^[4]

The Federal Reserve's Balancing Act

The Federal Reserve now faces the delicate task of guiding the economy amid shifting political winds and a still-uncertain inflation picture. In his post-meeting press conference, Fed Chair Jerome Powell acknowledged the progress made on inflation but cautioned against declaring victory prematurely. He signaled that future rate decisions would remain data-dependent and reiterated the Fed's commitment to its dual mandate of price stability and maximum employment.

"So we’re not declaring victory, but we feel like the story is very consistent with inflation continuing to come down on a bumpy path over the next couple of years and settling around 2 per cent. That story is intact" — Jerome Powell, US Federal Reserve^[5]

Notably, Powell pushed back against concerns that the election outcome could influence the central bank's policy stance or jeopardize his own position. He stated unequivocally that he would not resign if asked to do so by the incoming administration, emphasizing the Fed's independence and the fixed nature of the chair's four-year term.

Navigating the Trump Era: Implications for Inflation and Gold

Looking ahead, the prospect of a second Trump term raises questions about the trajectory of inflation and, by extension, the outlook for gold. During the campaign, Trump pledged to implement sweeping policy changes, including broad-based tariffs, mass deportations of undocumented immigrants, and substantial tax cuts. If enacted, these measures could put upward pressure on consumer prices and complicate the Fed's efforts to keep inflation in check.

For example, blanket tariffs on imported goods would likely be passed on to American consumers through higher prices for everyday items. Similarly, the large-scale deportation of undocumented workers could exacerbate labor shortages in key industries like agriculture, driving up costs and reducing the availability of certain products.

Moreover, the loss of tax revenue associated with a smaller undocumented immigrant population, estimated at around $100 billion per year, could widen the federal budget deficit at a time when Trump is also proposing additional tax cuts. This combination of inflationary pressures and rising deficits could put the Fed in a difficult position, potentially forcing policymakers to tighten monetary policy more aggressively than they would otherwise prefer.

Gold as a Haven in Uncertain Times

Paradoxically, the policies that could stoke inflation and lead to higher interest rates may also enhance gold's appeal as a safe-haven asset. In an environment characterized by heightened economic uncertainty, geopolitical tensions, and the erosion of trust in traditional institutions, gold has historically served as a reliable store of value and a means of diversification.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that while the risk of rising inflation could slow the pace of US rate cuts in the near term, it also underscores the importance of holding gold as a hedge against currency debasement and financial instability over the longer term.

"The (Federal Open Market Committee) will likely still cut on Thursday but the subsequent language will be studied closely for signs of a pause." - Ole Hansen, Saxo Bank Head of Commodity Strategy^[2]

Gold Mine Companies Offering the Safe Haven Exposure

Ridgeline Minerals

Ridgeline Minerals' (TSXV:RDG) high-grade gold discovery at the Swift project in Nevada, USA is a game-changer that validates the company's prospect generator model. The grades encountered are on par with major producing mines in the region operated by JV partner Nevada Gold Mines (NGM). Barrick, NGM's majority owner, specifically highlighted the Swift results in its quarterly MD&A, signaling the project's significance.

With NGM funding exploration to earn into Swift and multiple other partner-funded projects in the pipeline, Ridgeline provides exposure to district-scale discovery potential in Nevada with limited shareholder dilution. The prospect generator model allows monetizing success on a project-by-project basis, and upcoming fully-funded catalysts make Ridgeline a compelling exploration story offering flexibility in realizing value from the discovery.

Erdene Resource Development

Erdene Resource Development (TSX:ERD) is poising to transition from explorer to producer with its Bayan Khundii gold project in Mongolia targeting first production in mid-2025. At 60% complete, the project is on track with the processing plant structure erected and a power line to China under construction, demonstrating strong strategic infrastructure support. With all-in costs among the lowest globally, Erdene expects to generate significant free cash flow to simultaneously fund exploration and rapidly repay debt. The company's five-year growth strategy aims to expand production to 200-250koz/year by advancing multiple satellite deposits, leveraging infrastructure and its first-mover advantage in an emerging gold district.

Erdene's strategic partnership with a major Mongolian mining company, MMC, provides crucial in-country expertise and synergies. With near-term production and district-scale growth potential, Erdene offers a unique opportunity to gain exposure to Mongolia as a new frontier for gold mining investment.

Alkane Resources

Alkane Resources (ASX:ALK), an Australian gold producer, is generating solid margins and cash flow that position it for a potential re-rating. With all-in sustaining costs around A$2,000/oz and gold near A$4,000/oz, Alkane is enjoying robust profitability. A prudent hedging strategy provides downside protection while maintaining significant exposure to higher gold prices.

Alkane is investing in multiple initiatives to expand production to 100,000 oz/year and extend mine life into the 2030s. These organic growth projects are fully funded at current gold prices, providing a clear path to increased scale and cash generation.

First Mining Gold

First Mining Gold (TSX:FF) owns two of the 10 largest undeveloped gold projects in Canada with the Springpole and Duparquet deposits. The positive 2021 PFS for Springpole highlighted a large open-pit development with attractive economics and leverage to higher gold prices. First Mining is advancing Springpole through permitting with significant exploration upside still remaining.

The recently released PEA for Duparquet demonstrates the project's robust economics and potential to be another cornerstone asset for First Mining. Like Springpole, Duparquet has meaningful exploration potential to further enhance the project.

With a pipeline of other non-core assets providing financing flexibility, First Mining is well-positioned to unlock value from strategic gold assets in top mining jurisdictions make it a compelling investment opportunity with unparalleled leverage to a rising gold price.

Cabral Gold

Cabral Gold's (TSXV:CBR) Cuiú Cuiú project has district-scale potential next to GMining's 2Moz TZ mine now in commercial production. Cuiú Cuiú produced 10x more placer gold historically and shares similarities with TZ. Cabral has delineated indicated resources of 604,000 oz (21.6Mt @ 0.87g/t Au) and inferred resources of 534,500 oz (19.8Mt @ 0.84g/t Au) across two primary deposits so far. Drilling suggests meaningful resource expansion potential at both deposits.

The recently completed PFS outlines an economically robust gold-in-oxide starter operation providing near-term cash flow to fund aggressive resource expansion to +2Moz. With an experienced management team that has made 5 gold discoveries in the region, Cabral is well-positioned to realize the multi-million ounce potential of this district-scale land package.

More US-Based Gold Companies

Integra Resources offers exposure to near-term production and cash flow from the Florida Canyon mine in Nevada along with a pipeline of development-stage heap leach projects at DeLamar in Idaho and Nevada North. Florida Canyon is a proven operation expected to produce ~70,000 oz gold annually with extension potential. DeLamar and Nevada North offer significant production growth to achieve mid-tier status. The consolidated land package and regional synergies across the Great Basin assets create a 20+ year production platform.

Revival Gold 's two advanced-stage heap leach projects are complementary assets that can form the foundation of a +150,000 oz per year production platform in the Great Basin of the United States.Their flagship Beartrack-Arnett project in Idaho has a recently completed PFS outlining an economically attractive development with further resource expansion potential. The recently acquired Mercur project in Utah adds another cornerstone development-stage asset to Revival's portfolio. As a past-producing mine in a Tier-1 jurisdiction, Mercur provides Revival with a pipeline of oxide resource growth potential across a large land package. Initial metallurgical results are promising and Revival sees a clear path to completing a PEA by Q1 2025.

Conclusion

The 2024 US presidential election has ushered in a period of heightened uncertainty for the economy and financial markets. While gold experienced a sharp sell-off in the immediate aftermath of Donald Trump's victory, the precious metal quickly regained its footing and stands to benefit from the shifting policy landscape and the Federal Reserve's ongoing efforts to navigate an increasingly complex economic environment.

As investors grapple with the implications of a second Trump term, including the potential for higher inflation, larger budget deficits, and geopolitical tensions, gold is likely to remain an attractive portfolio diversifier and a reliable store of value. Though near-term volatility is to be expected, the underlying fundamentals supporting gold's long-term bull market remain firmly in place.

The Investment Thesis for Gold

• Gold serves as a hedge against inflation, currency debasement, and financial instability, which could become more prevalent under a second Trump administration.
• The metal's status as a safe-haven asset is likely to be reinforced by heightened economic uncertainty and geopolitical tensions.
• Gold provides portfolio diversification benefits, helping to mitigate risk during periods of market volatility.
• The Federal Reserve's cautious approach to monetary policy and the potential for a slower pace of rate cuts could support gold prices in the near term.
• Long-term structural factors, such as negative real interest rates, high global debt levels, and the erosion of trust in traditional institutions, remain favorable for gold.
• Investors should consider allocating a portion of their portfolio to gold, either through physical bullion, gold ETFs, or mining stocks, to capitalize on the metal's potential upside and protect against downside risks.

Key Takeaways

The 2024 US presidential election has injected fresh uncertainty into the economic and financial market outlook, with Donald Trump's victory raising questions about the future direction of monetary policy, inflation, and geopolitical stability. Gold experienced short-term volatility in response to the election outcome but quickly rebounded as investors reassessed the implications of a second Trump term.

Despite near-term fluctuations, the long-term investment case for gold remains compelling, underpinned by the metal's role as a safe-haven asset, a hedge against inflation and currency debasement, and a source of portfolio diversification. As the Federal Reserve navigates an increasingly complex economic landscape and the incoming administration pursues potentially inflationary policies, gold is likely to remain an attractive option for investors seeking to protect and grow their wealth in the years ahead

_References:

1. _{Streible, P. (November 2024). Kitco News. Gold/Silver: The hangover is gone! Time to re-examine precious metals - Metals Minute w/ Phil Streible}
2. _{Anil, A. (November 2024). Reuters. Gold hastens retreat as dollar rallies on Trump victory}
3. _{Patel, B., Anil, A. (November 2024). Reuters. Gold holds firm after US Fed rate cut, softer dollar}
4. _{McLeod, C. (November 2024). Investing News Network. Gold Futures Break US$2,800, 3 Experts Talk US Election Price Impact}
5. _{McLeod, C. (November 2024). Investing News Network. Gold Price Drops, Then Bounces on Trump Victory, Fed Rate Cut}
6. _{Belder, D. (November 2024). Investing News Network. Fed Cuts Rate in Post-Election Meeting, Gold and Silver Gain}
7. _{Belder, D. (November 2024). Investing News Network. Trump Win Fuels Surge in US Dollar, Gold and Silver Prices Fall}