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Has the gold market picked a side?

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(Kitco News) - The gold market is finding some buying momentum this Friday as prices are at a roughly two-week high, but according to analysts, this latest move still isn’t a firm signal that prices are ready to break out above $2,000 an ounce.

There are a lot of catalysts supporting gold prices in its current range, but from the price action that we have seen this past week, the one factor that will drive gold prices higher still remains intangible: the idea of further stimulus.

At the start of the week, Kitco News’ Anna Golubova reported that gold prices dropped 2% after President Donald Trump shut down the prospect of a comprehensive stimulus package in a tweet. Of course, he has since reversed course and now supports a $1.8 billion aid bill. According to analysts, this is what is driving the U.S. dollar down and gold prices up 2% Friday.

Investors should prepare themselves for further back and forth on stimulus talks, but analysts have warned that they shouldn’t get their expectations too high. The reality is, with the election less than a month away, neither side is going to be willing to agree to any deal. Neither party wants to give the other side a perceived win on stimulus.

With the Nov. 3 election looming closer and closer, many analysts are looking at what scenario is going to be the best for gold. Some analysts have said that the damage Trump did with his ill-conceived tweet at the start of the week has given Democratic nominee Joe Biden a clearer advantage and that is another factor that could be driving gold prices.

This past week, two banks published reports saying that a Biden victory would be the best-case scenario for gold. Standard Charter’s precious metals analyst Suki Cooper said that a Biden victory would be positive for gold and the market hasn’t priced this scenario in.

“A Biden victory and Democrats gaining full control of Congress paints the weakest scenario for the USD, UST yields and U.S. risk assets in light of intended fiscal stimulus and tax increases,” she said.

Meanwhile, Ole Hansen, head of commodity strategy at Saxo Bank, said that a Biden victory and his plan to support the economy with major spending initiatives will drive inflation higher. 

“Investors, asset managers and pension funds are increasingly waking up to the need for tail-end protection against inflation and it has led a continued increase throughout the year to the current record above 111 million ounces,” he said.

Of course, there are those who say that no matter who wins, gold will continue to go higher, which is true. When the dust settles after Nov. 3, the president will be faced with slower economic growth, interest rates that are practically at zero and a deficit that is only going to grow.

I think Frank Holmes, CEO of U.S. Global Investors, summed up the situation perfectly in this heated political environment: “Some are betting on blue, some betting on red, and I’m betting on gold.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.