Gold futures are trading higher on Monday with the move being driven by a weaker U.S. Dollar after investors turned optimistic about a new stimulus deal ahead of next month’s U.S. presidential election following comments by U.S. House Speaker Nancy Pelosi.
Pelosi said Sunday that differences with the Trump administration persist over a far-reaching aid package, but she was optimistic that Congress could pass a bill before Election Day on November 3.
At 13:01 GMT, December Comex gold futures are trading $1915.40, up $9.00 or +0.47%.
After posting a relatively flat trade the last three sessions, gold appears to be ready to resume its recent upside bias amid early session news that the elusive fiscal stimulus package is still a possibility before the U.S. election.
In my opinion, this really isn’t news because the market has been pricing in a deal for about a month although no one is certain over the size of the deal at this time. Furthermore, I don’t think it’s going to be possible to get any stimulus money into the hands of the people who need it until after November 3.
I really don’t know if they are going to agree in principal and tweak the deal over the next couple of weeks, or if this will be a complete package. It’s difficult to assess at this time because policymakers have placed politics ahead of the American people.
We do know that additional stimulus will be bad for the U.S. Dollar, but good for gold prices. I think the terms of the deal, especially the size of it, could determine how high gold moves over the short-run.
It is of our opinion that positive news over stimulus would trigger a breakout over the recent main top at $1939.40 and likely fuel a rapid rally into $1970.10 to $1998.20. At that point, the market could become rangebound until another deal is reached.
The so-called “other deal” will likely be determined by whether Trump is re-elected or Biden wins the election. If Trump wins then expect more of the back and forth negotiations. If Biden wins then look for an even bigger stimulus package early next year, especially if the Democrats sweep the house and the Senate.
An agreement on a stimulus package will be good for gold over the short-term, but gains will likely be capped quickly, as the economy will likely demand more as rising coronavirus cases will likely continue to threaten to derail the economic recovery.