The outcome of the US election could have a significant impact on gold prices. If there is a Democratic victory (partial or full), the impact on gold prices will be limited. If global tariffs are imposed under a Trump presidency, we are likely to see lower gold prices, while these moves are likely to be reversed in the longer term, notes Georgette Pauly, FX strategist at ABN AMRO.
Gold prices to fall if Republicans win
The evolution of the gold market from a safe haven and jewelry market to one where investment decisions play a more important role is important. In fact, since the introduction of gold ETFs (March 2003), gold has evolved into a speculative asset and behaved less like a safe haven asset. As a result, developments in the US dollar, monetary policy and real yields have become dominant drivers over time.”
Of course, there are still investors buying physical gold for safe haven purposes but flows into non-physical gold have often been dominant. What do we expect for prices under different scenarios? “If there is a democratic victory (partial or full), we think gold prices could receive very modest support as we expect a modest or neutral US dollar decline and some lower real yields. “We expect gold prices to remain around $2,500 per ounce.”
A Republican victory brings more complex dynamics. In a full-blown tariff scenario, we expect inflation to rise in the first years of the presidency, the Fed to raise interest rates and the US dollar to strengthen due to divergent and weak monetary policy elsewhere. As a result, gold prices will suffer, and gold prices could fall below the 200-day moving average and move towards $2,000 per ounce. After that
Gold prices fall as dollar holds steady; US data awaited
Gold prices fell to their lowest in more than a week on Monday as the US dollar held steady, while the market’s focus shifted to a series of economic data due this week for clues on the extent of interest rate cuts at the Federal Reserve’s September meeting.
Spot gold was down 0.1% at $2,501.06 an ounce by 10:34 GMT after falling to its lowest since Aug. 23 earlier in the session.
U.S. gold futures were up 0.2% at $2,533.40. Trading was expected to be light with U.S. markets closed for a holiday.
“To move higher from here, we need more clarity on whether rates will be cut by 25 (basis points) or 50 (basis points) and maybe by the end of the week, with the employment data, we might get more clarity on that side,” said Giovanni Staunovo, an analyst at UBS.
Traders are awaiting a raft of U.S. economic data due this week including the Institute for Supply Management surveys, JOLTS employment, ADP employment and nonfarm payrolls, Reuters reported.
Markets are widely expecting the Fed to cut rates at its September 17-18 meeting, which would be its first cut of the policy cycle.
Investors now see a 71% chance of a 25 basis point cut and a 29% chance of a 50 basis point cut in September. Lower interest rates reduce the opportunity cost of holding non-yielding gold.
“With earnings season largely over and a Fed rate cut on September 18 all but assured, investors appear content to stay long despite some recent firmness in both short-term rates and the U.S. dollar,” Mike Ingram, market analyst at Kinesis Money, said in a note.
Market Indexes Rise, Dow Jones Hits New Highs
The markets continue to rally but it’s the Dow Jones Industrial Average that’s hitting new all-time highs along with a few other indices including the Toronto index. But other major indices like the S&P 500 and Nasdaq that haven’t.
There were a few numbers last week but the ones that came out were surprising as they were somewhat stronger. But will that continue? That helped move the US Dollar Index higher which weighed on gold and it ended the week lower.
Gold continues to show strength as we move into a stronger period for it. For example, Lundin Gold Inc., a gold exploration and production company included in the Capital Enriched Conservative Growth Strategy*, reported that strong grades, improved recoveries, debt elimination, and high productivity supported higher revenues and income, strong cash flow, and double-digit dividends. We’re moving into a weaker period for stocks. Should we be defensive? September is the worst month of the year for stocks. The inverted yield curve is getting smaller, suggesting we are getting closer to a recession.
Interesting chart this week where we look at the S&P 500 in terms of gold and then we also look at the S&P 500 total return in terms of gold. There is a slight difference as you will see.
Next Friday brings August jobs numbers for both Canada and the US. They are looking for weak reports in both countries.
The dollar hovered near a two-week high hit earlier in the session, making gold more expensive for holders of other currencies.
Spot silver fell 0.7% to $28.62 an ounce, hitting its lowest in more than two weeks. Platinum was flat at $926.40 and palladium rose 0.5% to $969.99.
