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James Hyerczyk
Comex Gold

Comex Gold futures are moving higher on Thursday, driven by a weaker U.S. Dollar, which is making the dollar-denominated asset a more attractive asset to foreign buyers. The dollar is weakening because the strong rally in the stock market is dampening its appeal as a safe-haven asset. The catalyst behind the price action is the hope of a new stimulus package.

At 07:36 GMT, December Comex gold futures are trading $1900.90, up $5.40 or +0.28

Despite the early strength in the market, the buying still looks a little tentative because of the volatility attached to the stimulus deal. Policymakers hadn’t discussed the matter for weeks then early Wednesday it moved back to the forefront.

The stimulus story was not the only supportive news. There was also the release of better than expected U.S. economic data. This too dampened the dollar’s appeal as a safe-haven asset.

The key issue regarding the stimulus deal is whether it going to be something real, or something symbolic. At that point it’s hard to say how gold traders will react. A “real deal” will likely be supportive because more money pumped into the economy will reduce the value of the dollar. New stimulus is also likely to drive investors out of the safety of the greenback and into higher-yielding assets.

We may not necessarily see the same reactions if there is a “symbolic deal”. The biggest concern about that will be the timing of the actual deal. A symbolic deal likely means we may not see an actual deal until after the November 3 presidential election.

Economic News

Upbeat economic news also weighed on the U.S. Dollar, supporting gold prices on Wednesday. A spate of economic data mostly surprised to the upside, with ADP National Employment index blowing past analyst expectations and pending home sales surging to an all-time high.

U.S. private employers stepped up hiring in September, but diminishing government financial assistance and a resurgence in new COVID-19 cases in some parts of the country could slow the labor market’s recovery from the pandemic.

Other data on Wednesday confirmed that the economy suffered its sharpest contraction in at least 73 years in the second quarter because of the disruptions from the coronavirus. Record growth is predicted in the third quarter, buoyed by fiscal stimulus and the resumption of many business operations.

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Daily Forecast

With Mnuchin and Pelosi saying that talks about a deal had failed, but that they “made a lot of progress” on the long-awaited COVID-19 relief legislation, today’s focus may shift to the weekly jobless claims report and Friday’s U.S. Non-Farm Payrolls report.

If U.S. jobs data comes at least in line with expectations and as long as the wage inflation number is strong, gold’s gains may be limited.

For a look at all of today’s economic events, check out our economic calendar.
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