Focus to Stock Market
The story on Tuesday must be about stocks, which are again getting hammered as the markets have reopened following the Labor Day Holiday long weekend. The tech route is still underway, and the tech-heavy Nasdaq is down around 3% in mid-morning trade.
The metals complex has thus far not seen much interest or drive either way, and prices for both gold and silver are slightly lower in mid-morning action. Some key outside markets for the metals complex, including crude oil and the dollar index, are moving against the metals in early action. Dollar strength and crude weakness may, however, not be enough to prevent a rise in gold and silver today of the sell-off in equities gathers further steam.
The gold market has a variety of issues to contemplate and the next several weeks could see rising market volatility across asset classes. Not only do the gold bulls have to consider the current viral pandemic and economic slowdown, they also must consider the potential effects of central bank policies, price action in the dollar and the upcoming U.S. presidential election. These factors could make some significant waves in the weeks ahead before possibly finding a crescendo of sorts after the presidential election.
The primary drivers of stronger gold, including uncertainty over the viral pandemic and easing policies by global central banks, are likely to keep the yellow metal well-supported in the weeks and months ahead. While it is extremely likely, if not certain, that the Fed and central banks will continue to ease, the outcome of the presidential election is far less certain. A Trump victory could keep stocks on the offensive, with the dollar also continuing to trend lower. A Biden victory, however, could potentially ignite a significant sell-off in equities and risk assets and could also pave the way for higher gold.
The ECB will be meeting on Thursday of this week, and it is widely expected that the central bank will continue on its path of money printing and easy policy in order to fight the slowing effects of the COVID-19 pandemic. The U.S. Federal Reserve is scheduled to meet next week and is likely to do the same. A very dovish U.S. Fed could fuel a sharp rally in gold prices that could see the market hit new all-time highs and beyond. Any surprises from the Fed, on the other hand, could fuel a sharp sell-off in the gold market and could alter policy expectations for the months ahead. Although any hawkish talk from the Fed is very unlikely at this point, the gold market may see heightened volatility heading into the announcement and following it.
The gold bulls have maintained the upper hand on the daily chart and remain in control of the market from a technical standpoint. The market appears to have already shook out the “weak” longs, and that may prevent any further pullbacks of significance. The bears are likely to target the $1900 level on the downside, while the bulls will look to take price above the September highs near $2000.