Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Jumps above $1,900 Again

Commodities / Gold & Silver 2020 Oct 16, 2020 - 11:28 AM GMT

By: Arkadiusz_Sieron

Commodities

Biden widened his lead over Trump, while gold jumped above $1,900 again.

According to the most recent Reuters/Ipsos poll, Biden has increased his presidential race advantage. Now, as the chart below shows, he leads by 7 percent.


I don’t trust in opinion polls. And why is that you might wonder. It is because they measure the popular vote, which doesn’t exactly decide who wins the presidency. We all remember how the polls failed to predict Trump’s victory in 2016, and that is why we must take them with a grain of salt. However, investors have also increased their bets that the Democrat will have a clear-cut victory, as the green technology and trade-linked companies shares that would likely benefit from Democratic policies have climbed recently. The rising possibility of Biden’s triumph and Democrats taking control of the Senate has also increased the Treasury yields in anticipations of higher stimulus packages, as shown in the chart below.

Theoretically, this is bad news for gold, which prefers declining bond yields . But still, gold could also rise amid strengthened expectations of a bigger stimulus package. After all, the federal debt has recently ballooned. Last week, the Congressional Budget Office projected that the U.S. fiscal deficit had hit a record of $3.1 trillion in the 2020 budget year.

Compared to the GDP , the budget deficit amounts to 15.2 percent, the highest one since 1945. Additionally, 2020 was the fifth year in a row in which the deficit increased as a share of the economy’s size. In a ballooning public debt environment, the U.S. dollar could find itself under downward pressure, which should support the gold prices as a result .

The specter of mammoth debt is the reason why Republicans prefer a smaller stimulus package. However, they are now under immense pressure, as almost all mainstream economists claim that the economic recovery pace will slow down without significant financial support. For example, Jerome Powell, the Fed Chair, in a speech to the National Association for Business Economics , last week reiterated that Congress should provide more fiscal help. “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” he said. More specifically, the support is more than necessary due to the ongoing coronavirus threat, which drags the economy down. Indeed, things are devastating. As the chart below indicates, the daily number of new Covid-19 cases has risen again to 50,000!

The economic data is not encouraging, as well. Although the unemployment rate decreased further, last month’s employment increase fell short of Wall Street’s estimate, while the initial jobless claims remain elevated. Even more importantly, the high-frequency indicators show little evidence of quick and smooth recovery. For example, Oxford Economic Recovery Index is around 20 percent below the pre-pandemic level.

Implications for Gold

What does all of the above mean for the gold market? Well, as the chart below shows, gold jumped above $1,900 last week, partially due to the optimistic expectations of a new aid package, as Trump said on Thursday that talks with Congress have restarted over the fresh stimulus. And on Friday, the White House lifted its stimulus offer from $1.6 to $1.8 trillion. Two hundred billion one way or the other, what a difference!

The additional fiscal help would not only further balloon the already mammoth public debt, but it will also force the Fed to at least partially monetize the government’s debt, which would only increase the central bank’s balance sheet . This is good news for the yellow metal.

Of course, there are also some headwinds ahead of gold. For example, the minutes from the ECB’s last monetary policy meeting indicate that the ECB could be more worried about the state of the eurozone’s economy than previously thought and that it is planning additional monetary stimulus, maybe even this year. Even though the gold bugs could welcome additional liquidity from the central banks, the ECB's new measurements could weaken both the euro and the yellow metal against the US dollar.

Another risk is quicker than expected coronavirus vaccine distribution, which would increase the risk appetite among investors and slightly reduce the demand for gold as a safe-haven .

Nevertheless, the fundamental outlook remains positive for gold . An almost $2 trillion worth of stimulus is coming, which will balloon the public debt and weaken the U.S. dollar. The bond yields have recently increased, but the Fed’s purchases should prevent them from rising too much. All in all, gold should shine in such a macroeconomic environment.

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in