The 2024 United States Presidential Election, concluded with Donald Trump securing a second term in the White House. After the election, the market has responded dramatically to the results, with significant implications for commodity prices and global financial markets.
US equities surge as commodity prices decline
Following the election results, the US stock market generated substantial gains, with key indexes reaching new record highs. Meanwhile, commodity prices liquidated, weighed down by a sharp rebound in the US dollar. A 25-basis point rate cut by the US Federal Reserve in the first week of November has further influenced the commodity price outlook.
Commodity prices and the US dollar are inversely correlated. Since most of the international commodities are priced in US currency, fluctuations in the value of the US dollar can impact their prices.
Last week, the US dollar advanced to a near two-year high against major currencies gaining over 3 percent post the US presidential election. The currency has been on a recovery trajectory since the first week of October, on hopes that the US Central Bank will continue lowering interest rates.
Federal Reserve cuts rates by 25 bps in November meeting
In its most recent meeting, the US Federal Reserve cut its benchmark lending rate by a quarter percentage point, extending its efforts to keep the US economic expansion on solid footing. Officials voted unanimously to lower the federal funds rate to a range of 4.5% to 4.75%. The cut follows a more substantial half-point reduction in September.
Bullion experiences sharp correction
Gold and silver, which have been under a bullish trajectory in the last several months, experienced significant declines following the US election results. Gold prices in the key London spot market dropped to $2,536, down by more than 9 percent from its all-time high of $2,790 tested in October. Silver prices also lost more than 14 percent during the same period. However, limited selling pressure was seen in domestic gold and silver due to an all-time weak Indian Rupee.
In addition to a strong US currency, the market anticipates the new US government may effectively engage in the ongoing global geopolitical issues, which may bring down the demand for safe assets like gold and silver.
Copper and zinc lost the most, while aluminium prices held steady
The base metals complex witnessed considerable selling pressure. Copper and zinc prices corrected to about 7 percent in the last two weeks, while metals like aluminum and lead experienced more limited losses.
Industrial metals prices have been highly volatile throughout the year, due to factors pertaining to their fundamentals. Sluggish demand from China, uncertainty over US rate cuts, and feeble global growth outlook amid escalating geopolitical tensions were the reasons behind the fluctuating price performance.
Concerns persist that a potential increase in trade tensions under the Trump administration could further dampen global growth and industrial commodity demand.
Oil prices remain under pressure, while recovery is seen in Natural Gas
Crude oil prices also declined following Trump’s victory. Faltering demand from China and swelling American supplies continue to put pressure on prices.
There are forecasts that there may be fewer regulations on crude production under a new US president, possibly leading to a supply glut and consequently lower prices. Trump has also vowed to put more sanctions on Iranian and Venezuelan oil, which may result in tight market conditions potentially boosting prices.
Natural gas prices continue to gain, trading near one-year highs. Market movements in recent days show little evidence of a market reaction to the outcome of the election.
Volatility in the near future
Looking ahead, there are fears that Trump’s endorsement of protectionist policies could reignite trade tensions with China. A trade war with China is widely seen as detrimental to global industrial growth, as evident from the 2018-2019 trade tensions that disrupted trade between the world’s largest producer and consumer.
However, commodity market participants curiously await clarity on the new president’s course of action once he takes office in January.
