Stocks are off to a rough start as the new trading week gets underway, and the gold market is showing little to no reaction to the downside in equities today. A rise in COVID-19 cases, along with a lack of any new stimulus measures, has investors running for the exit signs today. In addition to the ongoing viral pandemic, investors must also consider the potential ramifications of the Presidential election which is now just over a week away.
The Dollar Index has been a major driver of gold prices in recent months, and a firmer greenback could be acting as a roadblock to higher gold today. The U.S. Federal Reserve appears ready and willing to hold rates at zero for an extended period while also flooding the system with extra dollars through unlimited quantitative easing. Although the possible effects of this action may need time to come to fruition, the Fed’s actions could eventually lead to not only rapid inflation but a drastically weaker dollar as well.
Other global central banks are poised to follow the Fed’s lead. The Bank of Japan, the Bank of Canada and the European Central Bank are all scheduled to meet this week. Those meetings could lead to changes in monetary policies that could promote further easing. The banks could also take an increasingly cautious tone and willingness to aid their economies with stronger measures if necessary. Investors will likely be most concerned with the central banks’ forward outlooks rather than any immediate changes to policy.
The gold market is not doing much today, and price action could remain muted until more stimulus is passed or the election is over. The yellow metal has been trading in a range that extends from its 50-day moving average (around $1921 on the daily chart) and its 100-day moving average (around $1883 on the daily chart). Although the metal could look to hold that range heading into the Presidential election, it will eventually break out or breakdown, potentially leading to gold’s next significant move higher or lower. Of course, the passing of any meaningful stimulus measures could also lead to a breakout and could occur quickly if such measures are set to be put to work immediately.
As recent COVID-19 stimulus discussions between Republicans and Democrats have yet to yield any results, the viral pandemic could be getting closer to forcing another round of global economic closures that could potentially put a halt to the ongoing recovery. Some nations have already recently implemented fresh measures in an attempt to curb the spread of the virus, and any widespread closures in major economic areas could send the global economy into recession.
The next several weeks could be very telling for the gold market as it wrestles with a variety of issues. The U.S. Presidential election, the viral pandemic and continuing easing measures by global central banks could all potentially keep a floor under the price of gold while encouraging the bulls to keep on buying. If the market does break out of its recent range to the upside, fresh all-time highs could be seen quickly and convincingly.