The culprit behind the plunge in gold prices has been found. The green light for a slimmer House stimulus bill. Will gold survive or fall?

Spot gold, which fluctuated in a tight range in early Asian trading on Friday, was up $2 at $1,865 an ounce. Spot gold closed at $1,867.26 an ounce, up $4.21, or 0.23 percent, after touching as low as $1,848.22 an ounce and as high as $1,877.00.

There are three possible culprits behind the recent plunge in gold prices: a rebound in the dollar, tighter liquidity and weak demand. And these three factors, in fact, are closely related to the flow of funds in the market.

The dollar index has regained its long-lost regal momentum, climbing steadily and holding steady above the 94 level to its highest level since late July. The BENCHMARK index is up more than 1.5 percent so far this month and on track for its best monthly gain in nearly three months.

Peter Krauth, a commodities portfolio consultant, noted that historically, the U.S. index has risen significantly whenever hedgers have started to increase their bets against the dollar. The positive divergence between the RSI and MACD momentum indicators and the gradual formation of an upward triangle since the rally in late August suggests the U.S. index could rise about 3 percent in the coming weeks and return to above the 96 mark.

The dollar index is outperforming the gold and silver in a race to the bottom that recalls the horror of March when liquidity dried up. After the liquidity crisis in March, the Federal Reserve rushed to shore up the building with unlimited QE. Even so, gold and US stocks took some time to recover after a deep correction.

So far this week, Federal Reserve officials, including Chairman Colin Powell, have come out in full force and expressed the same view: the Fed will keep interest rates low for years to come, but it will be up to the government to save the economy and markets. The fed officials’ comments make it abundantly clear that adding more liquidity in the current situation won’t be easy because Powell would prefer to wait for the administration and Congress to step in. The Fed’s ability to hold back amid renewed turmoil in financial markets will be hugely stressful for both parties in Congress.

House Democrats are preparing a new, smaller rescue package that is expected to cost about $2.4 trillion, a person familiar with the matter said Thursday. The offer is a “slimmer” offer than the previous $3tn bid to move negotiations forward with the White House.

Besides beefing up unemployment insurance, direct cash payments to Americans and loans to small businesses under the Pay Protection Program, the new package will include assistance to the airline industry to avert mass job losses, people familiar with the matter said. Mass lay-offs in the airline industry are likely to begin on October 1st, as programmes in the previous round of federal support legislation and assistance to small businesses expire.

To match the current funding, Democrats cut about $1 trillion from their previous proposal for a fifth round of pandemic assistance. While smaller than the $3.4 trillion stimulus package passed by the House of Representatives in May, it is still much larger than Senate Republicans have been willing to accept. U.S. President Donald Trump has said he is willing to accept up to $1.5 trillion.

Democrats are aiming to restart talks with the White House after talks broke down last month on an aid package for the epidemic. House Speaker Nancy Pelosi has repeatedly pushed Treasury Secretary Steven Mnuchin and Chief of Staff Mark Meadows to raise the White House’s $1.3 trillion offer by another $1 trillion.

Ms Pelosi has reportedly tasked the head of her committee with drafting the plan, which could be put to a vote in the House of Representatives next week if Democrats fail to reach a bipartisan agreement with the White House before it is completed.

The geopolitical situation continues to be the focus of risk sentiment.

According to a senior Indian government official, The Chinese have been told that if they try to occupy outposts or besige Indian troops, they will open fire and there will be no more primitive fighting with batons or stones on the Line of Actual Control (LAC), the Economic Times reported on Friday. According to the report, the Indian army has given clear instructions to troops at frontier outposts to shoot if they face hostile action, such as an attempt to overrun the outposts, or a large-scale attack by PLA soldiers using batons, spears or other improvised weapons.

“The message they are getting is that pushing and shoving will no longer be tolerated,” said one official, who asked not to be named. The message they got was that the original weapon was no longer usable. That has been communicated to them.” In diplomatic talks, China admitted that at least five people had been killed or wounded in the clashes, including the commander of a PLA battalion, the official said in detail. The official said the actual number of PLA casualties could be several times higher. This is a clear message to the PLA: “India will protect the border at all costs”.

On the U.S.-China front, NASA Administrator Jim Bridenstine told Congress Wednesday that an American presence in earth orbit after the international Space Station retires is crucial so China won’t gain a strategic advantage.

Five Republican US senators have urged Netflix to reconsider plans to turn a Chinese science fiction trilogy into a TV series because they say the author defends the Chinese government’s treatment of Uighur Muslims. In a letter to Netflix, the senators pointed to comments Liu cixin made to The New Yorker magazine in 2019 about China’s crackdown on Uighurs and other Muslims in the Xinjiang region. “If there is any role for the government, it is to help them develop their economy and help them out of poverty,” liu said. If you let the country relax a little bit, the consequences will be terrible.”

Senator Mark Rubio said Wednesday that the U.S. should help Taiwan strengthen its defenses to prevent an ‘invasion’ by China, as Beijing intensifies its military blackmail of Taipei. In his speech at the Hudson Institute, he Shared his thoughts on U.S. foreign policy and world affairs. Asked if Taiwan could become a “flashpoint for US-China relations”, he said he believed Beijing would eventually use force to take over the island.

China has built nearly 400 “detention camps” in the Xinjiang region, according to an Australian think tank, with at least 61 of them continuing to be built over the past two years, although Chinese authorities say their “re-education” system is winding down. New satellite images obtained by The Australian Strategic Policy Institute (ASPI) show a network of camps, 14 of which are still under construction, in remote areas of western China used to imprison Uighurs and other Muslim minorities. Since 2017, ASPI has identified a total of 380 camps in the region, ranging from minimum-security re-education camps to fortified prisons. That’s more than 100 more than previous surveys found, and researchers believe they have now identified most of the camps in the area.

Aftermarket Outlook:

In an interview with Kitco News on the sidelines of the virtual Denver Gold Forum, John Reade, chief market strategist at the World Gold Council, said a pullback at this point would be healthy after gold rose to its all-time high above $2,000 an ounce. One risk in the market, Says Reade, is that the gold market has only one pillar: investment demand. In his 35 years in the gold industry, he added, he had never seen such a contrast between the demand for investment in exchange traded funds and the physical market. “We saw a complete collapse in consumer demand in the first half of this year,” he said. “Fortunately, foreign investment demand, particularly from North America and Europe, is more than offsetting the weakness in consumption.”

After falling to a two-month low this week, gold could rise above $2,000 an ounce and hit a new high before the end of the year as the precious metals market continues to discount the risk of the U.S. election, a citigroup report showed. In a quarterly outlook for commodities, Citi analysts wrote that uncertainty surrounding the November 3 US election, including a possible disputed election outcome, could be “underpriced by the precious metals market”. That would mean gold would have to rise more than $200 from its current level.

Equity Management Academy said intraday selling signals have not yet been fully triggered and gold has strong technical support. At current price momentum, if gold can move back above the key support level of $1868 by the end of the week, the market will return to bullish mode, which would be a very positive bottom-hunting signal, especially for day traders who focus on short-term investments.

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