Growing by leaps and bounds, the US dollar forced the "bulls" in gold to go on the defensive. A record increase in COVID-19 infections, an increase in the number of hospitalizations in the United States to the highest level since August, and the rapid spread of the pandemic in Europe are scaring investors and forcing them to buy safe-haven assets. There is a chance of a repeat of the spring story with a fall in stock indices and precious metals amid the growing risks of a double recession. In such circumstances, even the US presidential election fades into the background.
Gold has been unable to move beyond the $1865-1930 per ounce consolidation range for a full month, hit by rising real Treasury yields, a stronger US dollar, and a drop in the S&P 500. Fans of the precious metal are not happy about the fading demand for ETF products, as well as the lack of interest in the physical asset in China. According to the results of three quarters, the demand for precious metals in China amounted to 548 tons, which is approximately 30% lower than in the same period last year. High prices and greater confidence in a brighter future than a year ago are reducing Chinese appetites.
Indeed, if in 2019 the country was concerned about the negative impact of trade wars on the economy, in 2020, due to the fact that Beijing was able to quickly cope with the pandemic, there is no special desire to buy safe-haven assets from residents of the Middle Kingdom. The main thing is that Donald Trump loses the election, then we can hope for an improvement in relations with the United States and the gradual abolition of import duties. Investors are confident that the Republican victory will strengthen the dollar and collapse the XAU/USD quotes, although not everyone is of this opinion.
JP Morgan believes that if Trump keeps the US President's seat, not only the US currency will grow, but also stocks. The company took as a basis a sample of 2016 when the unexpected victory of the Republicans contributed to the growth of the USD index and the S&P 500. Then there was a divergence in the dynamics of US stock indices and their Asian counterparts, which led to the overflow of capital to the States and the strengthening of the dollar.
Dynamics of the S&P 500 and Asian stock indexes
As for gold, according to JP Morgan, the potential for its pullback due to the "red wave" is limited. The spread of the pandemic increases the risks of additional stimulus from both Congress and the Fed. Monetary expansion usually weakens the national currency and lowers real bond yields. These factors have contributed to the XAU/USD rally of 23% since the beginning of the year.
If the precious metal is not particularly upset if Donald Trump wins, then Joe Biden's victory will spread its wings. The large-scale fiscal stimulus and the associated reflationary environment allow us to expect a drop in real rates on Treasury bonds and a weakening of the US dollar, which is good news for the XAU/USD bulls.
Technically, the exit of gold from the triangle will increase the risks of either restoring the upward trend or developing a correction. In the first case, it makes sense to buy an asset on the breakout of resistance at $1930 per ounce, in the second – to wait for the rebound from the supports at $1820 and $1805.
Gold, the daily chart