Pandemic fears, election uncertainty, U.S. dollar strength: a perfect storm is brewing against gold price - analysts
(Kitco News) - Renewed economic turmoil and geopolitical uncertainty is creating massive panic in the marketplace Monday and according to some analysts, cash is king in this environment.
A perfect storm is brewing that has pushed gold and equity markets down nearly 3% on the day, analysts said. The two markets are seeing their fortunes tied to stimulus measure expectations, which have significantly declined in the last few days.
December gold futures briefly dipped below $1,900 an ounce Monday but have since regained that important psychological level. December gold futures last traded at $1,909.60 an ounce, down 2.68% on the day. Meanwhile, the Dow Jones Industrial Average is down 803 points or 2.9% to 26854 points.
Along with falling expectations of new stimulus measures, growing uncertainty surrounding the U.S. elections is adding some pressure to equity markets, according to analysts.
“The idea that more money will come out of Congress is pretty much nil,” said Daniel Paviloni, senior commodities broker with RJO Futures. “With so much froth in the equity market this selloff if not too surprising,” he said.
George Gero, managing director of RBC Wealth Management, said it’s not surprising to see significant selling on the gold market as many issues are converging together.
He noted that the threat of a second wave of lockdown measures is weighing on economic growth, which in turn is weighing on equity markets. However, Gero added that the fears are more acute now because investors don’t have much hope that new stimulus measures will be enacted to protect the economy.
He added that gold will continue to struggle if there are no new stimulus measures announced.
U.S. election fears are also weighing on equity markets as the recent death of Supreme Court Justice Ruth Bader Ginsburg has ignited a frenzy in both parties.
Kevin Grady, president of Phoenix Futures and Options, said that the way the U.S. election is shaping up, it could take more than a week to find out who will be president of the U.S.
“For some states, they have up to 10 days to recount all the ballots,” he said. “A lot can happen in 10 years and that fear is hurting equity markets.”
Also hurting gold market is comments from the European Central Bank as they try to talk down the euro against the U.S. dollar.
Monday, ECB President Christine Lagarde said that the European economic recovery remains uncertain, incomplete and dependent on containing the virus outbreak.
In an email comment to Kitco News, Ole Hansen, head of commodity strategy at Saxo Bank said that there is a risk of a further blowout in gold if the euro falls below 1.17 against the U.S. dollar.
He added that he is neutral on gold as prices drop below $1,902 an ounce.
Most analyst have said that they are confident that gold prices will hold $1,900.