Price of Gold Fundamental Daily Forecast – Short-Term Cap Expected, but Underpinned Over Long-RunFriday’s price action suggests that without a stimulus bill in place, gold will be almost entirely influenced by the direction of the U.S. Dollar.
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.
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.