Dollar Under Pressure
The gold market is moving higher today to kick off the new trading week as the dollar index comes under some pressure. A bullish technical posture as well as some safe haven buying ahead of the rapidly approaching presidential election two weeks away is also playing a role in Monday’s rise.
The same old factors affecting the yellow metal are still very much in play. Hopes for a U.S. stimulus plan are a bit higher today following Nancy Pelosi setting a Tuesday deadline for an agreement with the White House. The President has said that he is closer to the Democrats’ desire for a larger overall package than Congressional Republicans. The Senate is set to vote on the $500 billion plan on Wednesday and a positive vote could set the stage for a sharp rally in equity markets and risk assets.
Outside of the U.S. Presidential election, the general focus remains on the health of the global economy. China recently reported that its economy grew by 4.9 percent for the third quarter. That figure was below expectations, yet still suggests that the globe’s second largest economy is powering back sharply from economic closures seen just months ago. With new cases of COVID-19 seeing a sharp rise recently, any positive economic news may be considered bullish and may be reflected as such in markets.
China is also taking further steps to cement its place at the head of the global economic table. Recent reports suggested that China passed new legislation over the weekend that could help it keep a key economic advantage over the West. The Chinese Government can now reportedly restrict rare earth mineral exports to foreign nations and their companies. Advanced technologies, such as LEDs, are also impacted by the new legislation. The move by the Chinese Government could force more market players to set up shop in China and could put Western companies and nations at a disadvantage. These measures are the most recent escalation in the ongoing war over global trade and a response by the U.S. and/or other Western nations may be expected.
The U.S. is full of uncertainty with the election quickly approaching and with the battle against the pandemic ongoing. The E.U. is also a source of investor angst, however, as a “hard” Brexit may be becoming increasingly likely. U.K. Prime Minister Boris Johnson stated over the weekend that Britain should prepare for a “hard” Brexit of the European Union does not agree to a free trade agreement. The next couple weeks may be critical in the ongoing saga, as it will become increasingly clear whether the two sides are willing and able to meet each other halfway in order to avoid further economic damage. The unknowns surrounding Brexit may keep the yellow metal well supported in the weeks ahead and could even lead to sharp gains for the metal.
All else being equal, a weaker dollar, weaker economy and uncertainty over the election and Brexit may keep the gold bulls on the offensive in the weeks ahead.