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James Hyerczyk

Gold futures are trading lower on Wednesday with a stronger U.S. Dollar helping to cap gains. The news that the U.S. fiscal stimulus package has been pushed to the other side of the November 3 presidential elections is also dampening demand for the dollar-denominated asset. Meanwhile, some traders are saying that concerns over a spike in coronavirus cases in Europe and the United States are helping to limit losses.

At 10:48 GMT, December Comex Gold is trading $1897.50, down $14.40 or -0.75%.

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Despite the short-term setback, the longer-term view remains bullish due to the accommodative central banks. Any fiscal stimulus is likely to spike prices higher, but it’s the free money from the central banks that will help sustain the longer-term rally.

COVID-19 Outbreak and U.S. Dollar

Global equities fell for a third consecutive session and London’s FTSE 100 dropped to its lowest level in six months. Consequently, the U.S. Dollar rose as investors sought safety.

Sterling fell against a strengthening dollar on Wednesday as markets turned risk-averse in light of a resurgence of COVID-19 infections in Europe, which is prompting new lockdown measures and challenging the narrative of a global economic recovery.

British Prime Minister Boris Johnson is being put under pressure for a new lockdown with the government working on the assumption the second wave of coronavirus will be more deadly than the first, the Telegraph newspaper reported.

Italy entered a new lockdown on Sunday and France is expected to introduce new restrictions on activity. A draft resolution seen by Reuters showed German Chancellor Angela Merkel wants to close all restaurants and bars from November 4.

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Volatility Jump Also Driving Investors into Safe-Haven US Dollar

Reuters is reporting that gauges for implied currency swings in the foreign exchange markets jumped to their highest levels in nearly seven months on Wednesday as traders anticipated more volatility before the outcome of the U.S. elections next week.

Contracts for Euro and Japanese Yen implied volatility versus the U.S. Dollar expiring in a week climbed to their highest since early April.

The contracts have nearly doubled from a day ago, in contrast to relative calm in the bond markets, indicating traders are increasingly preparing for more volatility in currency markets than in bonds, where unprecedented central bank stimulus has crushed market volatility.

Daily Forecast

President Trump probably put to bed any chances of fiscal stimulus bill before November 3 when he said an economic relief deal would likely come after the November 3 election despite a rise in infections and a stalling labor market recovery.

That being said, the focus is now on the election and all the volatility that goes along with it. Although the polls indicate Democratic candidate Joe Biden has the lead, the numbers are tightening. This is creating the uncertainty driving up demand for the U.S. Dollar. And when the greenback strengthens, foreign demand for dollar-denominated gold tends to fall.

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

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