Biden’s good for gold?
The medium term fundamental situation for gold remains very strong despite yesterday’s sell off. The Fed is expected to keep interest rates at current low levels until 2023. When inflation is taken into account rates are negative, so cash is unattractive to hold. The US dollar, which has a huge impact on gold prices, faces a period of weakness over the medium term. The expectations of large stimulus packages still to be released into the market also favours gold. With Biden firmly ahead in the polls, a Biden presidency could boost gold prices even higher.
- Biden would walk back President Trump’s ‘America first’ protectionist policies. This would weaken the USD and boost gold.
- Biden is ahead in the polls, but gold has been subdued. A Biden victory is not yet priced into the precious metal and the chances of an explosive reaction higher is real.
- Gold has been trading as a ‘risk-on’ commodity. So, when the US stimulus package finally gets passed this will boost risk assets and lift gold along with it.That should happen soon after the US election.
- Gold has been more resilient over the last few sessions even as equity markets fall. This shows that strong bids are underpinning gold.
- Technicals are supportive. See previous post here.
If a vaccine is able to be rolled out before year end then Chinese lunar New Year demand for gold should rapidly pick up.