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James Hyerczyk
Gold

Gold futures are trading lower on Tuesday as the U.S. Dollar rebounded, although the precious metal remained supported by the hope of another fiscal stimulus deal before the November 3 election.

Disappointed short-term buyers are weighing on prices. They want to see the stimulus action sooner rather than later. Meanwhile the longer-term bulls seem to be content with waiting until after the elections for the financial aid.

At 14:57 GMT, December Comex gold futures are trading $1891.70, down $37.20 or -1.93%.

Gold was trading steady-to-lower early Tuesday before a spike to the upside in the U.S. Dollar Index drove it sharply lower.

Investors are moving into the U.S. Dollar as a hedge against uncertainty. The dollar becomes an attractive alternative investment when investors face event risk. At this time, there are two event risks on the horizon – the stimulus package and the presidential election.

Stock market investors are buying equities as if the stimulus is coming and Democratic candidate Joe Biden won the election. U.S. Dollar traders are buying the dollar as protection against another stalemate in stimulus negotiations and President Trump’s re-election. The dollar is basically being used as an insurance policy against a steep break in the stock market.

US Consumer Inflation Increased

U.S. consumer prices increased for a fourth straight month in September, with the cost of cars and trucks rising by the most since 1969, though inflation is slowing amid labor market slack as the economy gradually recovers from the COVID-19 recession.

The consumer price index rose 0.2% last month after gaining 0.4% in August. The CPI advanced 0.6% in both June and July after falling in the prior three months as business closures to slow the spread of the coronavirus weighed on demand.

In the 12 months through September, the CPI increased 1.4% after rising 1.3% in August. Economists polled by Reuters had forecast the CPI climbing 0.2% in September and rising 1.4% year-on-year.

Excluding the volatile food and energy components, the CPI rose 0.2% last month after increasing 0.4% in August. In the 12 months through September, the core CPI gained 1.7%, matching August’s increase.

While the benign report from the Labor Department on Tuesday will have no direct impact on monetary policy, it should allow the Federal Reserve to keep interest rates near zero for a while and continue with massive cash infusions as it nurses the economy back to health.

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Daily Forecast

Gold is tracking the U.S. Dollar, which is spiking higher at the mid-session on Tuesday. We’re looking for this intraday trend to continue unless there is a surprise stimulus announcement or the polls suddenly shift in Trump’s favor.

We’re not too worried about the sell-off in gold because we believe it’s short-term in nature. The market is going to be long-term supported because there will eventually be a stimulus deal and it may even be bigger than the current proposal if Joe Biden becomes president.

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