Price of Gold Fundamental Daily Forecast – No Stimulus Before Election Fuels Short-Term Weakness

Gold futures are trading lower on Thursday, falling below the psychological $1900 level again after briefly regaining the level the previous session. The catalyst behind the move is the stronger U.S. Dollar, which is posting strong gains against the major currencies especially the commodity driven Australian Dollar.

The greenback is picking up strength after U.S. Treasury Secretary Stephen Mnuchin dashed hopes for a new stimulus package before the presidential election on Wednesday.

At 09:52 GMT, December Comex gold futures are trading $1897.40, down $9.90 or -0.52%.

Gold, which is considered a hedge in the face of inflation and a depressed currency, has risen 25% since the start of the year in light of unprecedented levels of global stimulus to cushion the impact of the economic blow from the pandemic. Gold traders want to see more fiscal stimulus because it will encourage move spending that will help boost inflation. The dollar is going up because “no deal” means there won’t be any extra dollars floating around to deflate the value of the dollar.

Gold appears to be treading water on the charts because short-term buyers are getting hurt by the back and forth negotiations over stimulus. They can’t afford to hold leveraged buys so they punch out of those positions when the dollar rises or the headlines are bad for stimulus. Long-term gold investors like the price action because they are buying gold on the dips. They expect to see stimulus at some point in the future and it may even be twice as much as expected if Joe Biden is elected president.

So short-term traders are helping to cap gold prices, and long-term buyers are underpinning prices, leading to a nearly sideways trade.

Short-Term Outlook

If Mnuchin is right and there is no stimulus deal before the election then look for gold to trade sideways to lower if the news underpins the U.S. Dollar. However, gold should resume its longer-term rally after the election because new stimulus is coming whether Trump or Biden wins the presidential race.

Furthermore, with the new restrictions in the U.K. and Europe just starting, we should start to see the impact of these moves in about a month. They are likely to show a slowing economy that could encourage the Bank of England to cut rates to negative and the European Central Bank (ECB) to offer additional stimulus. Both moves would likely be supportive for gold prices.

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