The US election has entered the 'final stage', and investors are turning their attention to the gold market. Historically, gold's performance after the US election has often been disappointing. Will it repeat the same pattern this year?

On November 4th, Citigroup analysts Kenny Xunyuan Hu, Maximilian J Layton, Viswanathrao Kintali and others released a report stating that gold may face short-term pressure after the US election, but the structural bull market for gold remains solid, advising investors to buy on dips in gold prices.

Gold has performed poorly in the short term, unlike the stock market.

Historically, the average return rate of gold in the short term after the US election (e.g. 1 week, 1 month) has been negative. Citigroup stated that this provides an opportunity to buy on dips.

Data shows that after the Nixon era, the average return rates of gold in the 1 day, 1 week, and 1 month after elections are 0.2%, -0.4%, and -0.4% respectively. In the four election cycles from 2008 to 2020, these short-term average return rates were as low as -0.8%, -2.2%, and -3.1%.

It is worth noting that in the past four election cycles, the return rates of gold in the one week and one month after the election seem to be negatively correlated with the performance of the US stock market. That is, when the S&P 500 index performs strongly, more gold is sold, and vice versa.

The analysis pointed out that this negative correlation can be explained as a decrease in market demand for holding gold to hedge uncertainty, and the capital trend towards the stock market.

If this relationship holds, Trump's victory, especially the 'Red Wave' (widely believed to be beneficial to the U.S. stock market), prompting tax cuts and supporting the stock market, could lead to tactical selling of gold, much like after Trump's victory in 2016, gold faced selling pressure and the price fell by 8.2% within a month.

In contrast, the relationship between short-term fluctuations in gold prices and U.S. Treasury yields, as well as the strength of the U.S. dollar, is much more ambiguous. After the elections in 2016 and 2020, despite the opposite trends in the USD, gold still experienced selling pressure.

The relationship between gold and the 'Trump trade' is not significant.

Although market participants consider gold as part of the 'Trump trade,' Citi believes the situation is not that simple. Compared to U.S. Treasury yields and the USD, the relationship between gold and Trump's lead in election betting is not clear. In the past few months, regardless of Trump's lead, gold has hit new highs several times.

From a trade perspective, Trump's proposed tariffs may ultimately be detrimental to U.S. growth, potentially increasing gold asset allocation and raising gold prices. However, from a fiscal perspective, Trump may increase spending, but also collaborate with Musk to reduce expenses, so the net impact of Trump 2.0 on the U.S. deficit remains unclear.

Supported by multiple factors, the gold price is aiming for $3000 in the next 6 months.

Analysis suggests that the impact of the US presidential election on gold appears negative, but it is still recommended to buy gold on any significant drop as the gold price is expected to have a greater upside potential, reaching $3000 per ounce within the next 6 months.

Citi believes this is supported by the ongoing deterioration of the US labor market and the rising demand for ETFs, while long-term themes such as the continuous expansion of global debt levels and the demand for alternative fiat currencies in the de-dollarization context also provide structural support for gold.

Moreover, market momentum is also positive. In the past six instances where the annual ROI of gold exceeded 20%, five times it continued to rise in the next calendar year, with an average increase of 15.4%. Gold has already risen by 33% so far this year.

Not only Citi, JPMorgan also expresses a bullish long-term view on gold. Analysts believe that despite the current overall bullish sentiment in the market, which may bring short-term correction risks, the fundamentals of gold remain strong in the medium term. The three main supporting factors of the Fed's interest rate cuts, global central bank gold purchases, and overall currency devaluation trades will continue to exist regardless of the outcome of the US elections.