A Quiet Start
The gold and silver markets are off to a quiet start as the new trading week gets underway. The gold market is slightly lower, down by about $6 per ounce in early action, while the white metal moves slightly higher, up by $.07 per ounce.
Markets may see lighter volume and quieter price action today as Thanksgiving is celebrated in Canada and the U.S. celebrates the Columbus Day Holiday. Improving market technicals on the daily charts may attract some fresh buying interest in the metals, while the overall fundamental stage remains quite bullish.
There are several issues that could drive price action in the weeks and months ahead. The upcoming U.S. Presidential election, for example, could fuel increasing market volatility and large price swings across asset classes. As former Vice-President Joe Biden has been pulling away in the polls, however, the risk of a contested election result may be declining, allowing stocks and risk assets room to run higher. A lot can change in three weeks though, and it would be foolish to count Trump out at this stage.
As the election rapidly approaches, the need for fiscal stimulus is great and the government has been discussing ways to make it happen. It does not look like a deal will be reached before the election at this point, however, and the country may be forced to wait until the next President is known before getting additional help.
The COVID-19 virus has continued to spread at an alarming rate in various regions including Europe and the U.K. The U.S. is also having a tough time battling the pandemic and hopes for a vaccine to become available in the next several weeks. A viable, effective and thoroughly tested vaccine could set the stage for a massive economic rebound, while a failure to bring a vaccine to market could lead to a further economic slowdown and additional action from central banks.
The gold market appears to have recently undergone a simple pullback, and that retracement may have alleviated an overbought condition. The bulls have stepped in on previous market dips and there is no reason to believe that they will not this time around. As the U.S. election approaches, an expansion in market volatility cannot be ruled out, especially if the race appears to tighten heading into the first week of November. This could keep gold on the offensive and could even lead to fresh all-time highs for the yellow metal in the weeks ahead.
The state of global monetary policies will also likely play a continuing role in precious metals. The U.S. Federal Reserve has already suggested that rates will remain low for some time to come. With little to no opportunity cost to own physical metals, investors may be more likely to pull the trigger and buy gold and silver in the months ahead. The state of monetary policies may remain similar to their current situation for years to come, and that may keep buying interest in precious metals elevated.