Spot gold has underperformed this week as the election approaches, and despite rising risk aversion, it appears to be shunning safe-haven funds while the US dollar continues to attract inflows.
Gold prices hit one-month lows this week amid election uncertainty and concerns about a Novel Coronavirus, said Bob Haberkorn, senior commodity broker at RJO Futures. But the big question is “when are precious metals going to start acting like precious metals?”
Gold, which fell to a low of $1,859 an ounce on Thursday, has yet to make a significant recovery.
“We’ve seen an increase in coVID-19 cases, a decline in the stock market and a rise in the dollar. The market is expecting a stimulus deal, but there is no stimulus between now and the election, “Haberkorn told Kitco News.
Haberkorn said if the selling intensifiesbefore the election, gold would first fall below $1,850 an ounce and then fall further to $1,825.
“Gold could hit $1,825. If there are more coronavirus announcements, the stock market could get more spooked, which could push down gold and silver prices ahead of the election, “he said.
Just two weeks ago, the markets were all but certain that the Democrats would sweep to victory in the polls. But now the situation seems more chaotic.
“If you had asked me two weeks ago who was going to win, I would have told you Joe biden,” Haberkorn said. If you ask me today, I’m starting to think that Trump is going to have the upper hand based on some of the Numbers that have been released. If Trump wins, the stock market will surge that night, followed by gold and silver, and people will hope that the stimulus package will pass.”
He added that metals prices, including gold, would rise further if Mr Biden won because his stimulus package could be much higher than Mr Trump’s.
“After we get through next week’s election, we should see a rebound in precious metals because the chances of a stimulus package passing are much higher,” Haberkorn said.
What investors need next week is for gold to start acting like it — as a safe haven. Haberkorn explained that while everything feels safe at the moment, most of the safe-haven buying is going to the dollar.
Precious metals need to start behaving like metals. They are so closely linked to the stock market, and have been since the coronavirus outbreak. When stocks fall, precious metals fall too. The problem now is that metals prices are rising for the same reasons that stock prices are rising — government stimulus and money printing. So, it’s an important question, when are precious metals going to start acting like precious metals?”
Haberkorn said the decoupling of gold from equities could emerge after the election.
“Precious metals are set for a great year in 2021, just as the markets have had enough stimulus and central bank bailouts,” he said. If Biden wins, there could be a selloff in the stock market, and then there could be a disconnect with gold and silver, because one reason for gold and silver to rise is in anticipation of larger stimulus measures.”
Taking into account all macro factors, especially the safe-haven appeal of all money printing and precious metals, gold and silver should be above current levels, Haberkorn added. “The best thing I’ve heard this year is that the Fed can’t create more gold and silver. But they can create dollars.”