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James Hyerczyk
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Comex Gold

Gold futures edged lower on Friday, while posting its first weekly decline in three weeks as fading chances of a U.S. stimulus agreement before the November 3 presidential election weighed on the precious metal’s appeal as an inflation hedge.

Furthermore, Friday’s price action suggests that without a stimulus bill in place over the next few weeks, gold will be almost entirely influenced by the direction of the U.S. Dollar.

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On Friday, December Comex gold settled at $1906.40, down $2.50 or -0.13%.

With various monetary stimulus packages still in place, those investors with a longer-term perspective see a well-supported market, but without a short-term catalyst like a fiscal stimulus package, the market will struggle to breakout to the upside.

Mixed US Economic Data Drives Sideways Outlook

On Friday, a stronger-than-expected U.S. retail sales report lifted appetite for riskier assets, but factory production unexpectedly fell in September.

U.S. retail sales accelerated in September, rounding out a strong quarter of economic activity, but the recovery from the COVID-19 recession is at a crossroads as government money runs out and companies continue to layoff workers.

Retail sales jumped 1.9% last month as consumers bought motor vehicles and clothing, died out and splashed out on hobbies. That followed an unrevised 0.6% increase in August. Economists polled by Reuters had forecast retail sales would rise 0.7% in September.

Excluded automobiles, gasoline, building materials and food services, sales increased 1.4% last month after a downwardly revised 0.3% drop in August.

These so-called core retail sales correspond mostly closely with the consumer spending component of gross domestic product. They were previously estimated to have dipped 0.1% in August.

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Short-Term Outlook

I think gold prices are likely to remain under pressure until a fiscal stimulus deal is reached, but I don’t think prices will collapse because of the presence of long-term investors. Meanwhile, gains are likely to be capped as long as investors continue to place money into the safe-haven U.S. Dollar.

The dollar could continue to gain over the near-term as long as there is fear over the outcome of the election. Rising COVID-19 and its potential impact on the economic recovery will also be a factor driving the dollar higher and pressuring dollar-denominated gold.

The pressure from the election will be lifted after November 3, but a second-wave of COVID-19 should continue to raise fears over the economic recovery. That fear will only be lifted if there is a fiscal stimulus package.

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

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