Forex Trading Library

Commodities After The Election: Increase in Volatility

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The global community is shocked by the victory of Donald Trump, so does the global markets, including commodities, which had a notable increase in volatility since the beginning of the elections until today. It might be easy for traders to understand the reason behind the crash in Crude Oil while safe haven soared significantly right after the announcement of his victory, but what might be complicated is to understand the reason behind the drop again in Crude Oil and safe haven assets, while the US Dollar is hovering near 4-montth high. However, I will try to make it as simple as possible.

Gold & Silver Spike

Gold and Silver soared sharply at the final hours of the results, as Mr. Trump was leading the exit polls. The reason for the notable spike in safe haven assets including Gold and Silver comes on the back of the notable decline in global equities, as the global markets are fearing Mr. Trump economic policies, which might hurt the global economy and not only the US economy. Therefore, traders where dumping shares and rushed to buy Gold and Silver. Such move has led Gold to spike with more than $60 while Silver added more than 4% and traded near $19 barrier.

Gold & Silver Decline

Despite the notable rally and the huge demand for both assets, the rally was short-lived, and both declined back sharply. However, Gold declined much more than Gold. Silver remained around $19, while Gold lost more than $100. The reason behind that decline was the reassurance of Mr. Trump. His victory statement was also shocking. Everyone thought that he will be sharp and will send strong messages Democrats. However, he addressed the nation and not only his supporters. Such statement was enough for traders to believe that things will not be as bad as they thought. Therefore, they got rid of their Gold and rushed back into the stock market, leading the US stock market to soar to new record high.

Crude Oil Decline

Crude Oil had a different story, since the announcement of the results, Crude Oil took a sharp nose dive, whether in WTI Crude or Brent Crude. WTI Crude tumbled to as low as $43, while Brent declined to $44. Since then, both have been hovering around those levels with no clear direction. However, the reason behind this decline comes due to many factors. Stronger Dollar, the election results, OPEC members remarks about their upcoming meeting on November 30th and most importantly, OPEC supplies just hit another record high.

Where Do We Go From Here?

The answer is not up or down; there are many questions remained unanswered and will take the time to get those answers. There are many factors involved, beginning with the Federal Reserve in December, OPEC meeting in November, the US transmission period until January and much more. However, what I can say here is that we are faced with the most difficult period of this year, maybe it’s even much more difficult than the Brexit event. We don’t know whether Trump will be able to take the decisions that he promised in the first 100 days, which will have a direct impact on the markets. Therefore, traders are advised to be very cautious and follow the developments carefully, as nothing will be clear at least until January.

 

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