The gold market may see some tough sailing ahead. A smooth presidential transition hopes for the COVID-19 vaccine and an accommodating Fed could all keep investors’ eyes on the equity markets while lessening the desire for perceived safe haven asset classes such as gold. With just a few short weeks left in the trading year, investors may become increasingly likely to hit the “sell” button as the end of the year approaches.
A weaker dollar, geopolitical concerns and the ongoing viral pandemic could all keep buyers eyeing gold, however, and the metal’s declines may be limited in nature. With the trend on the daily chart now turning bearish, the next major test for the bulls could come as the longer time frames-the weekly and monthly charts-try to flip lower as well.
The next several months may hold the keys to gold’s fortunes as the Biden presidency gets going in January. Although it has been said that democrats are bad for business and want higher taxes, the stock market has thus far responded favorably to the Biden win. This is perhaps due to the certainty surrounding the win and investors may simply be cheering on the fact that there is no contested election result that may drag on for weeks or months and hold up the new administration’s taking office. Despite President Trump’s complaints and political bantering, it seems as if most voters are quite confident in the Biden victory and do not see any reason to be concerned about the election being overturned or otherwise invalidated.
The demand for safe haven asset classes appears to remain, however, as Bitcoin recently made a fresh all-time high. The digital currency’s run has been impressive, although bumpy. Whether Bitcoin and other cryptocurrencies are positioning themselves to take gold’s place as the alternative asset of choice remains unclear. Further interest in cryptocurrencies and higher values could, however, detract from investor interest in gold and other precious metals. This theme may be played out in the coming months and years. Despite Bitcoin’s comparatively higher price, it still cannot be held in one’s hand and many investors may lack the comfort needed to hold it over the long-term.
Also acting as a potential market catalyst, the outgoing Trump administration could potentially levy further sanctions against Chinese companies before leaving office. Any further U.S./Chinese economic issues or disagreements could pave the way for equity market pressure. With many unknowns surrounding the trading relationship between the globe’s first and second-largest economies, any further ruffling of the feathers could be viewed as bearish and could fuel risk aversion. That, in turn, could lead to buying in the gold market as investors seek out safety as stocks presumably weaken.
With the bears now in control of the daily price chart, a test of the $1700 level on the downside could be seen in the weeks or months ahead. The bulls need to take prices sharply higher, for a close above resistance around $1850, to gain further bullish momentum.