Gold Market Outlook: The Calm Before the Storm! Market 'Addicted' to TA, US Election Countdown - A Major Gold Price Swing is Imminent
The gold price holding steady at the $1900/ounce level may be the calm before the storm, as the US presidential election is only two weeks away, and with high market anxiety, many investors are choosing to sit on the sidelines. Before or after the election, as both presidential candidates see a need for increased spending, a stimulus package will eventually be passed. Another factor keeping investors cautious is the resurgence of global COVID-19 cases, as concerns about lockdowns from a new wave of the pandemic are weighing on market sentiment.
Time:
2020-10-17 16:12
The gold price holding steady at the $1900 per ounce level may be the calm before the storm, as the US presidential election is only two weeks away, and with high market anxiety, many investors are choosing to sit on the sidelines and wait and see.
“Uncertainty remains the market's mantra,” said Rhona O'Connel, StoneX's market analyst for Europe, the Middle East and Africa, on Friday (October 16). Gold Prices haven't really moved, trading in a range in dollar terms, reflecting market participants' reluctance to take large positions before the election outcome (which, in our view, will at least be favorable to gold).
The main drivers of gold price increases remain the US economic stimulus negotiations and the dollar's reaction to intermittent news.
“Gold and stocks are both addicted to the stimulus package. Any word from the negotiations directly correlates with stocks and gold. That's why gold is in a holding pattern,” Kevin Grady, president of Phoenix Futures and Options, told Kitco News on Friday.
Stimulus package negotiations
Analysts say that a US fiscal stimulus package seems unlikely before the November 3 election at this point.
In the latest news, US Treasury Secretary Mnuchin told House Speaker Pelosi that President Trump would personally ask Senate Republicans to support any deal that has been reached. However, Senate Majority Leader McConnell rejected the idea, saying he could not sell a larger package to his members.
“With the president trailing in national and several swing state polls, Trump no longer has the clout to sway the Senate,” said Marc Chandler, managing director at Bannockburn Global Forex.
Grady explained that the gold price movement is directly related to stimulus measures because gold is inflation-driven. He added that the more money the government prints, the more the dollar depreciates. “They devalue the currency, which pushes gold higher. Even Bitcoin will start to become an alternative investment. The dollar is the world's reserve currency, and a weaker dollar will boost gold.”
A stimulus package will eventually pass, before or after the election, as both presidential candidates see the need for increased spending.
Surge in COVID-19 cases
Another factor keeping investors cautious is the renewed surge in global COVID-19 cases, as concerns about renewed pandemic lockdowns are weighing on market sentiment.
“With the COVID-19 pandemic resurfacing in Europe and the US, global investors are also watching the latest developments in the spread of the virus. In this era without a vaccine, a country's economic recovery depends on its ability to control the coronavirus, as each country's health response is the foundation of its economic recovery,” FXTM market analyst Han Tan said.
Tan added that if the coronavirus is not contained, the economic recovery could slow or even derail, benefiting safe-haven assets such as gold.
The latest US economic data has been mixed so far. While initial jobless claims rose to their highest level since last August, approaching 900,000, earlier this week, US retail sales in September were far higher than expected, rising 1.9%.
Governments around the world face a dilemma – opening up the economy too early could lead to more severe economic lockdowns. Grady said that not opening up enough could mean the recovery stalls.
With just over two weeks to go until the election
There is reason for anxiety in the market before the election, as the biggest risk remains the possibility of a contested election, or even civil unrest.
“The election outcome is far from certain, and political risk could still hurt equity bulls if prices rally wildly,” Tan pointed out.
O'Connell warned that if the stock market falls sharply before or after the election, gold will also be hit as investors increase liquidity. However, this move may only be temporary. She said: “Of course, as the February/March drop this year proved, the (gold) drop will be far less than the equity market and will adjust much more quickly.”
The US remains highly divided in this election. Beyond that, there are COVID restrictions and the chaos of mail-in ballots. Additionally, there is the looming question of whether Trump will accept and concede the election results if Biden wins.
“The uncertainty surrounding the election is a problem. If you don't trust the election system, that's a problem,” Grady pointed out.
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