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James Hyerczyk
Comex Gold

Gold futures finished higher last week after spending most of the week lower. In fact, if it weren’t for Friday’s surge, the market would have posted a loss for the week. The choppy price action was fueled by confusion over U.S. stimulus after President Donald Trump first drove the market lower by cancelling all negotiations then sending prices higher on Friday when he announced a desire for an even bigger fiscal stimulus package than Republicans proposed in late summer.

Last week, December Comex gold settled at $1926.20, up $18.60 or +0.98%.

Friday’s Rally Was All the Bulls Needed

Gold climbed more than 1% on Friday and 0.98% for the week as the U.S. Dollar retreated to a near three-week low against a basket of major currencies and increased bets for fresh U.S. stimulus pushed investors to bullion as a hedge against likely inflation.

With a lot of optimism being built around the new U.S. stimulus package, a further drop in the dollar could add more fuel, and given the strong technical momentum late last week, bullion could break out to the upside with the nearest target zone coming in at $1970.10 to $1998.20.

There is plenty of room to the upside, but the market needs a catalyst and that catalyst will be the continuation of stimulus talks. Gold bulls are looking for any news that could drive prices higher, which means just the idea of more stimulus is good enough to generate an upside bias. That’s a good thing because the latest news over the week-end suggests the stalemate is likely to continue, dampening the chances of a pre-election stimulus package.

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Biden Victory to the Rescue

While on-going stimulus negotiations will be a good thing for gold if they keep the pressure on the U.S. Dollar, gold bulls may actually have an ace up their sleeve, and that ace is Democratic candidate Joe Biden.

According to reports late last week, the dollar weakened and gold rallied as expectations grew that Joe Biden would win the U.S. presidency and offer fiscal stimulus after the elections.

Additionally, several Wall Street banks forecast a stimulus package no matter which candidate wins, but say that a Biden presidency, if Democrats also retake control of the Senate, would be likely to result in a bigger one. UBS Asset Management, for example, is assigning a 75% probability of a Biden win.

“Besides possibly losing the presidency, Republicans may also lose control of the Senate as betting odds are giving Democrats a near 70% chance of taking the Senate,” Brown Brothers Harriman strategists said.

Weekly Forecast

Gold is likely to be underpinned over the next three weeks leading into the election because the polls show Biden holding a comfortable lead over Trump. As we said before, a Biden victory and a Democratic sweep will likely lead to an even bigger stimulus package next year.

But if traders think the market will spike higher over the short-run, they are going to have to get some help from a stimulus deal, and that could be tough.

According to reports on Sunday, chances for another round of stimulus before the election appeared to dim over the weekend, as both House Speaker Nancy Pelosi and Senate Republicans pushed back on a $1.8 trillion offer from the White House.

I see a mostly sideways-to-firm trade if the stimulus talks continue, but if both parties announce an end to the talks then look for gold prices to weaken, but not necessarily fall below the recent bottom at $1851.00.

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

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