The DOLLAR index.DXY rose modestly in Asian trading on Monday, trading near 94.10. Spot gold quickly pulled up short – term, gold just broke through $1,880 an ounce barrier. Despite the stronger dollar, concerns about rising coVID-19 cases and uncertainty surrounding this week’s US presidential election provided support for safe-haven gold, analysts said. Investors are heading into a ‘thriller’ week ahead of Tuesday’s U.S. presidential election, with the big risk that the results won’t be known by Tuesday night local time, which could trigger wild market swings. In addition, major central Banks such as the Federal Reserve, The Bank of England and the Reserve Bank of Australia will release interest rate decisions, among which the Fed’s decision will be the top priority. On the economic front, the U.S. non-farm payrolls report, due this week, is expected to add more ripples to an already volatile market.
The outlook for gold in the wake of the US presidential election is bullish
The biggest risk of the week is the US election, which heads to the polls on Tuesday. The biggest unknown is whether the election results will be announced soon.
Early voting continues to set records, with at least 90 million Americans already casting their ballots, virtually guaranteeing a majority of votes will be cast before Election Day.
Jim Wyckoff, senior technical analyst at Kitco.com, said that with this week’s controversial U.S. presidential election and the likely uncertainty surrounding it, safe-haven demand will pour into the gold market.
US President Donald Trump predicted on Saturday that the election would not be known on Tuesday, warning that “you’ll be waiting for weeks” and suggesting that “very bad things” could happen when states count votes in the days after election Day.
“So if you look at November 3, I think it’s probably not going to be decided in Pennsylvania because it’s a very big state,” Mr. Trump predicted in a speech to hundreds of supporters at the first of four smaller campaign events in the state on Saturday. We will be waiting a long time. We will not have a result on November 3rd.”
Peter Hug, head of global trading at Kitco Metals, said whether the vote was a “blue tide” or a “red tide” would have a positive impact on gold prices, with the “blue tide” likely to cause the biggest gold rally. The biggest risk, however, is that the outcome is uncertain or contested.
Spot gold surged higher on Monday, passing the $1,880 an ounce barrier and hitting as high as $1,883.30 an ounce.
Adrian Day, President of Adrian Day Asset Management, said many people have been sitting on the sidelines, waiting for the outcome of the U.S. election, so the market could see a wave of buying at the end of this risky event.
“By Monday and Tuesday night, there will be volatility in the market,” said Hug. The real trading days are Wednesday, Thursday and Friday. Whoever wins, there will be a major stimulus put into the market and that will give the metals market a big boost.”
Bart Melek, global head of strategy at TD Securities in New York, said a consensus is emerging that whoever wins, the United States will get fiscal stimulus and keep interest rates low. “If there’s a blue wave, we’ll borrow and spend more, and gold will rebound,” Melek said. “If there’s a red wave, we’ll spend less money, but it’s still good for gold.”
“If there is a clear winner, the stock market will go up and metals prices will go up on Tuesday night or overnight in Europe,” said Hug. If this is a tight election with no clear winner or if the election results are delayed by a few days, the stock market will come under pressure and people will turn to cash, which may not be good for metals.”
Melek said the worst case scenario for gold would be a close election because it would cause panic and delay the implementation of fiscal stimulus.
“Once we have clear results, we get a kick out of it,” Melek says. If we had a divided government, the stimulus might not be that great, but we would get something. Now, the market has sold off because we got nothing.”
According to the latest Kitco News gold survey released on Friday, most analysts expect gold prices to rise this week. Eighteen analysts responded to the survey last week. A total of 12 analysts (67%) expect gold prices to rise this week; Meanwhile, two analysts (11%) think gold will fall and four (22%) think it will move sideways.
Gold bulls are looking for higher prices as Democrats look likely to take control of Congress and the White House. Democratic presidential candidate Joe Biden has a nearly 89 percent chance of winning the election, according to political pundits.
Meanwhile, Democrats are expected to win 52 seats in the closely watched Senate elections. Many experts call this election the “blue wave.” That scenario is most favorable for gold, analysts say, because it means governments will be able to deliver significant fiscal stimulus to support struggling economies.
Adam Button, chief currency strategist at Forexlive.com in New York, said he expects gold prices to edge higher in that scenario. “I expect Joe Biden to end up in the White House and the Democrats to end up in control of the Senate,” he said. This outcome will ensure massive spending and deficits for the foreseeable future and will underpin gold’s multi-year rally while depressing the dollar.”
But analysts also see another scenario that could favor gold: a close race between the two parties.
Many analysts on Wall Street are looking to the aftermath of Tuesday’s election to focus on long-term fundamentals and the need for more stimulus measures as the COVID-19 epidemic continues to take its toll on the global economy.
Ole Hansen, head of commodity strategy at Saxo Bank, said: “I think 48 hours after the election, as the epidemic comes back into focus, you will see higher gold prices. Whoever is elected, this virus will continue to damage the economy, and a worsening economy will mean that the government must act. At this point, the ELECTION is not a game changer, it is not going to change the strong fundamentals of the gold market.”
World real-time statistics show that the cumulative number of confirmed cases of COVID-19 globally has exceeded 46.8 million. Nine countries — the United States, India, Brazil, Russia, Spain, Argentina, France, Colombia and the United Kingdom — now have more than 1 million confirmed cases. The United States, Brazil and India are the three countries with more than 100,000 cumulative deaths.
The number of confirmed COVID-19 cases in the United States has exceeded 9.47 million, an increase of more than 70,000 in a single day. The cumulative number of deaths has exceeded 236,000. Experts warn that the surge in new confirmed cases could outstrip the capacity of medical facilities, leading to a rapid rise in deaths.
We are seeing outbreaks across the United States. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said new cases were on the rise in 47 of the 50 states, and hospitals across the country were overwhelmed by the surge in inpatient admissions.
Don’t forget fed decisions and non-farm payrolls
In addition to Tuesday’s election, investor markets will be digesting a slew of economic data and events this week, including a Federal Reserve decision on interest rates on Thursday.
The FEDERAL Open Market Committee (FOMC) will release its interest rate decision at 03:00 Beijing time on Friday. Federal Reserve Chairman Colin Powell will hold a press conference at 03:30 Beijing time on Friday.
Markets expect the Fed to keep interest rates near zero. Analysts expect the Fed to continue to stress the need for fiscal stimulus at its meeting this week.
Fed officials said after their last meeting in September that interest rates were likely to remain at current levels until at least the end of 2023.
James Knightley, chief international economist at ING, said: “The Fed is likely to retain its dovish bias at Thursday’s FOMC meeting, promising to stand aside and provide more stimulus if necessary. We would expect to see them reiterate that fiscal policy is a more effective tool at the moment.”
Analysts said Mr Powell was also likely to be asked again this week about the Fed’s assessment of inflationary pressures. Fed officials said in September that they would “keep inflation at just above 2 per cent for some time in order for inflation to average 2 per cent for some time”.
On the data front, the FOCUS will be on U.S. non-farm payrolls, due Friday at 21:30 Beijing time.
Non-farm payrolls are expected to have risen by 610,000 in October after rising 661,000 in September, according to authoritative media surveys. The unemployment rate is likely to fall from 7.9 per cent in September to 7.7 per cent.
In addition to nonfarm payrolls, there are other key U.S. data releases this week, including the ISM manufacturing purchasing managers’ index on Monday, factory orders on Tuesday, the ISM non-manufacturing purchasing managers’ index and ADP employment data on Wednesday, and new claims for jobless benefits on Thursday.