Gold: Next Stop $1800
The gold bull run continues.
Since breaking out to fresh multi-year highs last week of around the $1780 mark last week, the gold bulls are taking a breather and awaiting further catalysts.
What could these catalysts of further upside in the precious metal be?
1) US Covid-19 second wave deaths begin to rise back to April levels
Markets have pretty much come back round to the idea that the Covid-19 outbreak in the US is far from over. Cases and hospitalisation rates have shot higher in numerous States, mostly concentrated in the South and West (California, Texas, Florida).
But the death rate is yet to drastically pick up. This could be a reflection of the fact that more testing is being done now, so the percentage of positive cases that actually turn out to be serious and life threatening is actually lower.
Hopefully this is the case, but the more testing = more positive cases argument cannot explain why the percentage of people testing positive out of those being tested is still at April levels. (i.e. if more testing the reason for more cases, you would expect the percentage of positive results to be lower).
In the coming weeks, we could see a rapid rise in the number of deaths in the US, back towards April daily highs of above 2k per day. With a higher death rate, the threat of pandemic become “more real”, and could prompt stricter lockdowns in the US and greater levels of consumer fear.
All of this is bad for risk assets, is likely bad for USD and ought to support gold.
2) Fed stimulus is not over yet
With the resurgence of the virus in the US, the much hoped for (and even indicated by the early data) V-shaped recovery is under threat.
Fed officials have been at pains to explain that uncertainties to do with the virus mean that they cannot say if they will need to do more stimulus.
Should the US enter a double dip recession, amid a second virus wave, watch out for the Fed stepping in with even more stimulus.
What do we always say about gold? It LOVES central bank stimulus, particularly from the Fed… hence this could be another source of further gold impetus.
3) Trumps election hopes are fading
Markets over the weekend again revised lower their expectations of US President Trump getting re-elected (his chances are now seen at only 35%).
There is even talk amongst GOP operatives are for the first time that Trump could drop out of the race if his poll numbers don’t rebound, reported a Fox Business News reporter this morning.
Trump has been a USD positive President – he likes fiscal stimulus at home (good for US growth and USD) and he likes protectionism abroad (bad for global growth so good for USD).
Biden is thus seen as a USD negative, so the higher his chances of winning, the more this will weigh on USD. With a weaker USD, typically comes strength in gold.
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