The DOLLAR index.DXY slipped modestly in Asian trading on Friday, trading near 93.80. Spot gold has rebounded, just above $1,875 an ounce. Gold bulls have been cheered by President Donald Trump’s assertion that the US will have a “very big” stimulus package after the election, while gold has also been supported by pre-election uncertainty. On Friday evening Beijing time, investors will be greeted with a slew of US economic data, with the FED’s favorite inflation measure, the PCE price index, the most closely watched, expected to have some influence on market movements.
The U.S. dollar index rose to its highest in more than a week on Thursday, while gold fell to a one-month low, helped by a new wave of safe-haven inflows from Germany and France aimed at stemming a second wave of novel Coronavirus outbreaks.
The dollar index.DXY closed up 0.52 percent at 93.94 on Thursday, having hit an intraday high of 94.11. Spot gold closed at $1,867.26 an ounce, down $9.72, or 0.52 percent, after touching an intraday low of $1,859.87 an ounce.
Fears of further economic damage grew on Wednesday as France and Germany declared renewed lockdowns as a second wave of massive coronavirus infections threatened Europe.
Total demand for gold fell 19 per cent year-on-year to 892 tonnes in the third quarter, the lowest quarterly total since 2009, according to data released by the World Gold Council on Thursday. News of falling demand for gold also dealt a blow to prices on Thursday.
Gold hit its long-awaited target of $1,860.90 an ounce on Thursday and tried to break below that level, according to Economies.com, suggesting further declines in the coming trading days. Once the price effectively falls below $1,860.90 an ounce, gold’s next target is $1,794.80.
Economies.com added that if gold held at $1,860.90 an ounce, that would be bullish and encourage gold to try to rebound, with the first target at $1,901.80.
The dollar retreated in Asian trading on Friday, giving gold some momentum. Spot gold accelerated its short-term gains, touching as high as $1, 876.24 an ounce.
President Donald Trump on Thursday reiterated that the United States will have a “very big” stimulus package, saying he wants a new aid package that is bigger than what House Speaker Nancy Pelosi has proposed.
Mr Trump said he would implement a large stimulus package as soon as possible after the election. He will continue to help airlines and consider another round of PPP negotiations. On Tuesday, Trump officially announced that bipartisan talks had broken down, saying a stimulus package could not be launched before the election and that “after the election, we’re going to have the best stimulus package ever.”
The White House’s $1.88 trillion new proposal still falls short of the Democrats’ $2.2 trillion baseline.
Mr Trump had already said earlier this month that he would support a bigger stimulus than the administration’s latest $1.8tn fiscal stimulus and accused Ms Pelosi of blocking a deal. It is worth noting, however, that even if Mr Trump agrees to a bigger fiscal stimulus, he faces significant resistance within his own party. Senate Majority Leader Mitch McConnell has repeatedly voiced opposition, saying it would not have the support of Republican lawmakers.
The introduction of the stimulus package will help boost demand for gold. Driven by near-zero global interest rates and unprecedented stimulus measures, gold, seen as an inflation hedge, is up 22% this year.
Bob Haberkorn, senior market strategist at RJO Futures in New York, said precious metals are highly dependent on more stimulus right now.
Gold has also been supported by the uncertainty surrounding the US election. Public opinion polls ahead of the November 3 election showed Mr. Biden with a significant advantage nationally, but less so in the swing states that could determine the outcome.
A Reuters/Ipsos poll released on Wednesday found Trump essentially tied with Biden in Florida, with 49 percent saying they would vote for Biden and 47 percent for Trump. The state has 29 electoral votes and is a key battleground in Tuesday’s election. Mr Trump’s victory in Florida in 2016 was the key to his surprise election victory.
“While Biden is ahead, Trump has been catching up in some of the swing states,” said Shinichiro Kadota, senior strategist at Barclays. If it is a close race, including the risk of not releasing the full results [on election day], there is certainly the potential for more volatility.”
Still, the epidemic remains severe in the U.S. and Europe, helping the dollar avoid further declines and limiting gold’s gains.
“The mood is similar to what happened in late February and early March,” said Rikiya Takebe, senior strategist at Okasan Online Securities. He was referring to when the coronavirus began to spread in the United States and Europe.
Takebe said: “At that time, investors shifted to buying dollars to protect against emergency risks, leading to a higher dollar. I think that’s more or less where the market is going right now.”
The global epidemic continues to develop, with the number of confirmed cases exceeding 500,000 in a single day, setting a new record since the outbreak began. Novel Coronavirus in Europe has seen a surge, while the EPIDEMIC in the United States continues to worsen and the number of confirmed cases and hospitalizations in the Midwest of the United States is increasing at a record rate.
World real-time statistics show that the cumulative number of confirmed cases of COVID-19 worldwide has exceeded 45.31 million, and the cumulative number of deaths has exceeded 1.185 million. In the United States, the number of confirmed cases of COVID-19 has exceeded 9.21 million, with more than 234,000 deaths.
Novel Coronavirus infections are on the rise in 47 states and hospitals across the country are already overflowing, Fauci, an infectious disease specialist, told CNBC on Wednesday. If the US government does not change, the country will be “full of pain”.
The Fed’s favourite measure of inflation has hit
The PCE price index, the Fed’s preferred inflation measure, will be closely watched by investors on Friday at 20:30 Beijing time when the U.S. government releases its personal income and spending data for September.
The U.S. consumer price index is expected to rise 1.5 percent at an annual rate in September after rising 1.4 percent, a media survey showed. The core PCE price index is expected to rise 1.7 percent at an annual rate in September, up from 1.6 percent the previous month.
The core PCE annualized price index is the Fed’s preferred inflation measure and has a big influence on interest rate decisions.
The PCE price index was first developed by the Bureau of Economic Analysis of the U.S. Department of Commerce and adopted by the Federal Open Market Committee (FOMC), the Federal Reserve’s policy-making body, as a key measure of inflation in 2002.
In addition to the PCE price index, investors are also looking at the final reading of the University of Michigan’s Consumer sentiment index for October, due at 22:00 GMT on Friday, with a reading of 81.2.
The correlation between the University of Michigan’s consumer confidence index and consumer spending is strong. If consumer confidence comes out stronger than expected, the dollar could rebound and gold could take a hit.
On the economic front Thursday, U.S. gross domestic product expanded at a record 33.1 percent annual rate in the third quarter, with markets expecting 32 percent growth, after falling 31.4 percent. Strong U.S. GDP data helped push the dollar higher on Thursday.
Paul Ashworth, the chief US economist at Capital Economics, said: “Overall, the tentative recovery in GDP from the first lockdown has been stronger than we initially expected. But with record Numbers of coronavirus infections in recent days and any additional fiscal stimulus unlikely to be in place until early next year at the earliest, further progress will be much slower.”