Wall Street looking past election, while retail investors remain cautious
(Kitco News) - Sentiment remains overall bullish in the gold market next week ahead of the Nov. 3 General Election; however, the latest results of the Kitco News Weekly gold survey show retail investors are lot more cautious as election uncertainty remains prevalent.
Among Wall Street analysts, many are looking past Tuesday's election and paying attention to long-term fundamentals and the need for more stimulus measures as the COVID-19 pandemic continues to takes its toll on the global economy.
"I think 48 hours after the election, you will see gold go higher as the pandemic comes back into focus," said Ole Hansen, head of commodity strategy at Saxo Bank. "No matter who is elected, the virus continues to hurt the economy and that deterioration will mean that governments will have to act. At this point, the U.S. election is not a game-changer that will shift the strong fundamentals in play in the gold market."
This week 18 analysts participated in the survey. A total of 12 voters each, or 67%, called for gold prices to rise next week; meanwhile, two analysts, or 11%, called for lower prices, and four analysts, or 22%, saw gold prices trading sideways.
In an interesting reversal, Main Street is a lot less bullish on gold compared to Wall Street. The gold market continues to struggle to attract retail interest as Participation in Kitco News' weekly online surveys remains relatively muted at a level not seen in nearly a year.
A total of 1,138 votes were cast this past week. Among those, 588 voters, or 52%, said they were bullish on gold next week. Another 380, or 33%, said they were bearish, while 179 voters, or 15%, were neutral.
Last week more than 61% of retail investors were bullish on gold while market analysts were decidedly mixed, with 41% bullish or neutral on the market. The gold market saw a sharp selloff mid-week as prices dropped below $1,900 an ounce. December gold futures last traded at $1,876 an ounce, down more than 1.5% from the previous week.
Looking ahead, many analysts are looking for higher gold prices as it looks like the Democratic could take control of Congress and the White House. According to political pundits, Democratic presidential nominee Joe Bidden has nearly an 89% chance of winning the election.
Meanwhile, in the closely watched Senate race, in what many pundits are calling a blue wave, Democrats look poised to win 52 seats.
Analysts have noted that this scenario would be the most bullish for gold, as it means the government would be able to push through major fiscal stimulus measures to support the beleaguered economy.
Adam Button, chief currency strategist at Forexlive.com, said that in this scenario, he sees gold prices marginally higher.
"I expect a definitive White House win for Biden and in the Senate for Democrats. That outcome ensures heavy spending and deficits for the foreseeable future and will underpin a multi-year rally in gold while weighing on the U.S. dollar," he said.
However, analysts also see another scenario that could be bullish for gold, a close race that is contested by either party.
"Safe-haven demand will kick in for the gold market with next week's contentious U.S. elections and the likely uncertainty surrounding them,' said Jim Wyckoff, senior technical analyst at Kitco.com.
Adrian Day, said that he sees only one scenario where gold suffers next week.
"Least desirable for the gold market would be that Biden wins the presidency, but that the Republicans retain firm control of the senate, and take control of the House, an unlikely result," he said. "We look for gold to move up next week."
Day added that a lot of people have been sitting on the sidelines waiting for the election results so the market could see a wave of buying as that risk event concludes.
However, there are also some analysts who continue to see further technical weakness as the price action is testing critical support levels. Charlie Nedoss, senior market strategist with LaSalle Futures, said that he is bullish next week, but gold trading below its 100-day moving average needs to hold support at $1,860 an ounce.
Nicholas Frappell, global general manager at ABC Bullion, said that he looks for gold prices to test support around $1,841 next week as the U.S. dollar is finding support at a significant trend line.
"Gold's weakness is being attributed to the rally in the DXY, which in turn is being attributed to the climb in Coronavirus cases in Europe and the U.S., which is plausible; however, it is also the case that the DXY has found support (again) at a trend line extending back to 2011," he said.