Despite gold’s falls yesterday. Gold’s fundamental outlook remains very good. The Federal Reserve are not planning on raising interest rates until 2023. So, when inflation is considered this means that rates are negative. This makes cash unattractive to hold and increases gold’s appeal.
US dollar weakness ahead
The US dollar, which heavily impacts gold prices, faces a period of weakness over the medium term. This is to provide a further gold boost.
The expectations of a huge US stimulus packages still to be confirmed after the US elections also favours gold. With Biden firmly ahead in the polls a Biden presidency could boost gold prices even higher for the further following reasons:
- Biden would retract from President Trump’s ‘America first’ protectionist policies. This weakens the USD, helps the global economy, and boosts gold.
- Biden is ahead in the polls, but gold has still been relatively subdued. This means Biden victory is not yet priced into the precious metal. This increases the chances of an explosive reaction higher gold.
- Gold has been trading as a ‘risk-on’ commodity. So, when the US stimulus package finally gets passed through the US administration this will boost risk assets and lift gold along with it.
- Gold has been far more resilient over the last few sessions even as equity markets fall. This shows that strong bids are underpinning gold, despite the risk off tones ahead of the US elections.
- Technicals are supportive. See previous post here.
If a vaccine is able to be rolled out before the end of 2021 then Chinese lunar New Year demand for gold should pick up too further boosting gold prices into year end and 2022. The 100 EMA is providing near term support for gold at the moment and can be used to define short term risk for buyers.