Stable Gold Prices as Stocks Trade Lower

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Stocks are off to a rough start as the new trading week gets underway, and the gold market is showing little to no reaction to the downside in equities today. A rise in COVID-19 cases, along with a lack of any new stimulus measures, has investors running for the exit signs today. In addition to the ongoing viral pandemic, investors must also consider the potential ramifications of the Presidential election which is now just over a week away.

 

The Dollar Index has been a major driver of gold prices in recent months, and a firmer greenback could be acting as a roadblock to higher gold today. The U.S. Federal Reserve appears ready and willing to hold rates at zero for an extended period while also flooding the system with extra dollars through unlimited quantitative easing. Although the possible effects of this action may need time to come to fruition, the Fed’s actions could eventually lead to not only rapid inflation but a drastically weaker dollar as well.

 

Other global central banks are poised to follow the Fed’s lead. The Bank of Japan, the Bank of Canada and the European Central Bank are all scheduled to meet this week. Those meetings could lead to changes in monetary policies that could promote further easing. The banks could also take an increasingly cautious tone and willingness to aid their economies with stronger measures if necessary. Investors will likely be most concerned with the central banks’ forward outlooks rather than any immediate changes to policy.

 

The gold market is not doing much today, and price action could remain muted until more stimulus is passed or the election is over. The yellow metal has been trading in a range that extends from its 50-day moving average (around $1921 on the daily chart) and its 100-day moving average (around $1883 on the daily chart). Although the metal could look to hold that range heading into the Presidential election, it will eventually break out or breakdown, potentially leading to gold’s next significant move higher or lower. Of course, the passing of any meaningful stimulus measures could also lead to a breakout and could occur quickly if such measures are set to be put to work immediately.

 

As recent COVID-19 stimulus discussions between Republicans and Democrats have yet to yield any results, the viral pandemic could be getting closer to forcing another round of global economic closures that could potentially put a halt to the ongoing recovery. Some nations have already recently implemented fresh measures in an attempt to curb the spread of the virus, and any widespread closures in major economic areas could send the global economy into recession.

 

The next several weeks could be very telling for the gold market as it wrestles with a variety of issues. The U.S. Presidential election, the viral pandemic and continuing easing measures by global central banks could all potentially keep a floor under the price of gold while encouraging the bulls to keep on buying. If the market does break out of its recent range to the upside, fresh all-time highs could be seen quickly and convincingly.

Dollar Under Pressure

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The gold market is moving higher today to kick off the new trading week as the dollar index comes under some pressure. A bullish technical posture as well as some safe haven buying ahead of the rapidly approaching presidential election two weeks away is also playing a role in Monday’s rise.

 

The same old factors affecting the yellow metal are still very much in play. Hopes for a U.S. stimulus plan are a bit higher today following Nancy Pelosi setting a Tuesday deadline for an agreement with the White House. The President has said that he is closer to the Democrats’ desire for a larger overall package than Congressional Republicans. The Senate is set to vote on the $500 billion plan on Wednesday and a positive vote could set the stage for a sharp rally in equity markets and risk assets.

 

Outside of the U.S. Presidential election, the general focus remains on the health of the global economy. China recently reported that its economy grew by 4.9 percent for the third quarter. That figure was below expectations, yet still suggests that the globe’s second largest economy is powering back sharply from economic closures seen just months ago. With new cases of COVID-19 seeing a sharp rise recently, any positive economic news may be considered bullish and may be reflected as such in markets.

 

China is also taking further steps to cement its place at the head of the global economic table. Recent reports suggested that China passed new legislation over the weekend that could help it keep a key economic advantage over the West. The Chinese Government can now reportedly restrict rare earth mineral exports to foreign nations and their companies. Advanced technologies, such as LEDs, are also impacted by the new legislation. The move by the Chinese Government could force more market players to set up shop in China and could put Western companies and nations at a disadvantage. These measures are the most recent escalation in the ongoing war over global trade and a response by the U.S. and/or other Western nations may be expected.

 

The U.S. is full of uncertainty with the election quickly approaching and with the battle against the pandemic ongoing. The E.U. is also a source of investor angst, however, as a “hard” Brexit may be becoming increasingly likely. U.K. Prime Minister Boris Johnson stated over the weekend that Britain should prepare for a “hard” Brexit of the European Union does not agree to a free trade agreement. The next couple weeks may be critical in the ongoing saga, as it will become increasingly clear whether the two sides are willing and able to meet each other halfway in order to avoid further economic damage. The unknowns surrounding Brexit may keep the yellow metal well supported in the weeks ahead and could even lead to sharp gains for the metal.

 

All else being equal, a weaker dollar, weaker economy and uncertainty over the election and Brexit may keep the gold bulls on the offensive in the weeks ahead.

A Quiet Start

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The gold and silver markets are off to a quiet start as the new trading week gets underway. The gold market is slightly lower, down by about $6 per ounce in early action, while the white metal moves slightly higher, up by $.07 per ounce.

 

Markets may see lighter volume and quieter price action today as Thanksgiving is celebrated in Canada and the U.S. celebrates the Columbus Day Holiday. Improving market technicals on the daily charts may attract some fresh buying interest in the metals, while the overall fundamental stage remains quite bullish.

 

There are several issues that could drive price action in the weeks and months ahead. The upcoming U.S. Presidential election, for example, could fuel increasing market volatility and large price swings across asset classes. As former Vice-President Joe Biden has been pulling away in the polls, however, the risk of a contested election result may be declining, allowing stocks and risk assets room to run higher. A lot can change in three weeks though, and it would be foolish to count Trump out at this stage.

 

As the election rapidly approaches, the need for fiscal stimulus is great and the government has been discussing ways to make it happen. It does not look like a deal will be reached before the election at this point, however, and the country may be forced to wait until the next President is known before getting additional help.

 

The COVID-19 virus has continued to spread at an alarming rate in various regions including Europe and the U.K. The U.S. is also having a tough time battling the pandemic and hopes for a vaccine to become available in the next several weeks. A viable, effective and thoroughly tested vaccine could set the stage for a massive economic rebound, while a failure to bring a vaccine to market could lead to a further economic slowdown and additional action from central banks.

 

The gold market appears to have recently undergone a simple pullback, and that retracement may have alleviated an overbought condition. The bulls have stepped in on previous market dips and there is no reason to believe that they will not this time around. As the U.S. election approaches, an expansion in market volatility cannot be ruled out, especially if the race appears to tighten heading into the first week of November. This could keep gold on the offensive and could even lead to fresh all-time highs for the yellow metal in the weeks ahead.

 

The state of global monetary policies will also likely play a continuing role in precious metals. The U.S. Federal Reserve has already suggested that rates will remain low for some time to come. With little to no opportunity cost to own physical metals, investors may be more likely to pull the trigger and buy gold and silver in the months ahead. The state of monetary policies may remain similar to their current situation for years to come, and that may keep buying interest in precious metals elevated.

Holding $1900

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The gold market is holding above the $1900 level despite sharply higher stocks. Hope for another round of stimulus spending out of Washington D.C. has investors buying stocks and risk assets even as President Donald Trump remains hospitalized with the COVID-19 virus. Optimism over Trump’s health is also playing a role on Monday following the President’s recent motorcade appearance yesterday.

 

The recent downside seen in the gold market may be nothing more than a healthy market correction, and that correction may have now run its course. The previously overbought condition has now shifted to an oversold condition, and that oversold condition may lead to buying interest this week that could stabilize the market and further encourage the bullish camp.

 

The markets certainly have no shortage of factors that could affect price action. As the global economy continues to monitor the spread of the CIVID-19 pandemic, many investors are now likely watching President Donald Trump very closely after he said he tested positive for the virus late last week. Although recent appearances from the President have been encouraging to his followers, his actual health situation remains unclear and the virus is known to cause significant and rapid changes in those who contract it. A serious downturn in Trump’s condition, for example, could fuel a massive flight to safety and sell-off in stocks and risk assets. A rapid recovery, on the other hand, could be viewed as encouraging and could fuel fresh all-time highs in equities in the weeks ahead.

 

The rapidly approaching U.S. Presidential election will also likely play an increasing role in the metals markets and other global financial markets. The democratic margin of victory has reportedly spread in recent days, and a Biden win could set the stage for a significant shift in investor thinking and market action. A Trump victory, however, could potentially see stocks continue higher while the dollar index weakens further.

 

The gold market may now turn its attention to the upcoming election as well as any central bank activity. Despite the widening lead for Democratic candidate Joe Biden, markets may see increasing volatility as the election approaches. Trump has seemingly already begun to set the stage for an election outcome disagreement, although the wider Biden’s lead becomes the less likely Trump may have any ground to stand on following the vote. Although a decisive election result may calm some nerves, others may become increasingly anxious over the notion of a Biden victory and what that could mean for markets and the economy. Given current thoughts of increased taxes and tighter regulations, many investors could choose to head for the exits and markets could see a significant downward slope post-election.

 

Regardless of who wins the November 3rd election, the stage may be set for higher gold prices. The combination of a weaker economy, declining dollar, central bank easing and other factors may be too much for the bears to handle. The value of gold is quite likely to increase in the months and years ahead, as shifting economic and market dynamics fuel the desire for perceived safe haven asset classes.