Commodity Blog

Gold and silver are continuing their descent in the aftermath of Donald Trump‘s improbable presidential victory. As the US dollar and Treasury yields strengthened to kick off the trading week, gold and silver plunged even further, reaching multi-month lows.

December gold futures declined $2.40, or 0.24%, to $1,224.60 per ounce at 16:50 GMT on Monday. Gold has not traded this low since June 3. As the first trading session of the week winds down, the yellow metal may pare its losses and retreat from the 5-½-month low.

Silver is cratering, too. December silver futures dipped $0.49, or 2.75%, to $16.94 an ounce. Silver is also trading at its lowest level since the beginning of June.

The precious metals are falling on market expectations that president-elect Trump will boost US spending. During the election campaign, the real estate billionaire mogul pledged to spend roughly $1 trillion on infrastructure over the next 10 years. This has helped boost the greenback and give the Treasury yields a shot in the arm.

Moreover, investors are also betting that an increase to interest rates in December by the Federal Reserve is a certainty. Fed Vice Chair Stanley Fischer confirmed on Friday in Chile that US economic growth seems to be strong enough to handle a December rate hike.

In my view, the prospects of a continued steady expansion in the US economy are maximized to the extent that we proceed with a gradual removal of accommodation. On more expansionary fiscal policy, I think many members of the open market committee and of the Federal Reserve Board have commented it would be useful to have a more expansionary fiscal policy.

According to the CME Group FedWatch tool, there is now an 85% chance that the Federal Open Market Committee (FOMC) will vote to raise rates at its December 13 and 14 policy meeting.

Higher rates impact gold because it lifts the opportunity cost of holding non-interest-bearing commodities. A stronger dollar also makes it more expensive for foreign investors to buy gold.

Year-to-date, gold has surged more than 20%, while silver has climbed nearly 40%.

If you have any questions and comments on the commodities today, use the form below to reply.