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Gold eyes best week since July on easing dollar, U.S. elections

·         Gold rose on Friday, set to post its best week since July, as the dollar weakened and increasing chances of a Joe Biden victory in the U.S. presidential election boosted hopes for a larger coronavirus relief bill.

·         Spot gold rose 0.1% to $1,950.12 per ounce, on track for a 3.6% weekly gain, the most since late July. U.S. gold futures rose 0.24% to $1,951.5.

 

·         Silver gained 2.04% to $25.70 an ounce.

·         “A devaluation of the U.S. dollar has driven gold prices to six-week highs, also some safe-haven demand amid the uncertainty of the presidential elections and rising COVID cases,” Kitco Metals senior analyst Jim Wyckoff said.

“The market is factoring in a Biden victory, (which) will lead to more government stimulus programmes and that could introduce some problematic price inflation down the road and also deflate the value of (the) dollar.”

 

 

·         Gold, considered a hedge against inflation and currency debasement, has risen 28% this year on the back of massive global stimulus to help coronavirus-hit economies.

 

·         “Although the continued U.S. election uncertainty is taking away the prospect of an immediate stimulus package, markets believe that one would eventually be coming, and so that may be why gold is moving up,” ED&F Man Capital Markets analyst Edward Meir said.

“We have a decent shot of getting to $2,000 an ounce by month-end if not earlier.”

 

·         Gold: Bullish wedge pattern points to $2300 - Credit Suisse

Credit Suisse maintains a long-term bullish bias on gold targeting a move towards $2300.

"Gold extends its consolidation from our $2075 target hit in August and we maintain our core view this is a temporary and corrective pause in the broader uptrend," CS notes.

"Indeed, price action is beginning to increasingly look like a bullish "wedge" continuation pattern, adding weight to our view. Key support stays seen intact at $1837 - the 38.2% retracement of the 2020 rally - and our bias remains for this to continue to hold. Above $1933 would now suggest the "wedge" has been completed for strength back to $2016, then the $2075 high. Big picture, we continue to look for $2300," CS adds.

·         Dollar slumps to 2-month low, investors see more declines

The dollar sank to its lowest level in over two months against a basket of peer currencies on Friday, as vote counting for the contentious U.S. election dragged on and investors predicted more losses for the currency.

The dollar index fell against a basket of six major currencies to 92.274, hitting its lowest level since September 2.

For the week, the dollar index was down 1.6%, on course for its biggest drop in almost four months.

A large decline in long-term Treasury yields due to expectations for less fiscal spending, combined with a rally in equities and other riskier assets, has placed the dollar under consistent selling pressure that is likely to continue.

The dollar fell further against the Japanese yen, trading at 103.23 yen on Friday, close to an eight-month low.

Japanese Prime Minister Yoshihide Suga has vowed to work closely with overseas authorities to keep currency moves stable, because a strong yen is widely viewed as a threat to Japan’s economy.

Against a buoyant euro, the dollar traded at $1.1874 after falling 0.87% in the previous session.

The single currency has risen sharply this week on the dollar’s weakness, but has also benefited from news of the European Union inching closer to a budget deal.

The British pound traded at $1.3128, 0.2% lower on the day after a hefty 1.23% gain on Thursday.

 

 

·         U.S. Strong jobs report

The Labor Department said the U.S. unemployment rate fell to 6.9% in October from 7.9%. Economists polled by Dow Jones expected the rate to dip to 7.7%. The U.S. economy also added 638,000 jobs last month, topping an estimate of 530,000.

“The latest jobs report shows the U.S. economy is rebounding quickly from COVID-related shutdowns in the spring with the unemployment already dropping below 7%,” said Tony Bedikian, Head of Global Markets at Citizens.

“Despite strong signals that many Americans are getting back to work, however, the number of coronavirus cases is rising and that may mean new restrictions on daily life that could further accelerate a shift to a more digital economy and increase calls for additional government stimulus,” Bedikian added.

 

·         Oil drops more than 4% as Covid-19 cases surge

Oil fell below $40 a barrel on Friday as drawn-out vote counting in the U.S. presidential election kept markets on edge and new lockdowns in Europe to halt surging COVID-19 infections sparked concern over the demand.

Brent crude fell $1.52, or 3.7%, to $39.41. U.S. West Texas Intermediate (WTI) settled 4.3%, or $1.65, lower at $37.14 per barrel.

Still, Brent was heading for a 6% weekly gain, and U.S. crude was up 4.5% on the week.

U.S. Senate Majority Leader Mitch McConnell said on Friday that economic statistics including a 1 percentage point drop in the U.S. unemployment rate showed that Congress should enact a smaller coronavirus stimulus package that is highly targeted at the effects of the pandemic.

 

·         S&P 500 closes flat, but posts best week since April even with election undecided

Stocks closed mostly flat on Friday as traders looked for clarity around the presidential and congressional election results.

The S&P 500 ended the session down about 1 point at 3,509.44. The Nasdaq Composite rose less than 0.1% to 11,895.23. The Dow Jones Industrial dipped 66.78 points, or 0.2%, to end the day at 28,323.40.

Energy and financials were the worst-performing sectors in the S&P 500, falling 2.1% and 0.8%, respectively. UnitedHealth led the Dow lower with a decline of nearly 2%.

Despite the uncertainty around the presidential vote, Wall Street notched its best weekly performance since April. The S&P 500 and Nasdaq jumped 7.3% and 9%, respectively, for the week. The Dow rose 6.9% this week. The S&P 500 also posted its biggest election week gain since 1932.

Victories by Republicans in several key Senate races, thus lowering the odds of a “blue wave” and the potential for higher taxes and stronger regulations, have been cited by Wall Street strategists as a reason for the rally in stocks. However, Republicans have not yet won the necessary seats to control the Senate, according to NBC News projections, with two potential run-off elections in Georgia.

To be sure, a divided government could make it harder for lawmakers to push through new fiscal stimulus.

·         China’s October exports jump 11.4% from last year, highest in 19 months

China exports growth quickened to its highest in 19 months in October, while imports also showed solid growth, official data showed on Saturday, as the world’s second largest economy continued a recovery from the initial impact of the coronavirus crisis earlier this year.

Exports in October rose 11.4% from a year earlier, beating analysts’ expectations of a 9.3% increase and quickening from a solid 9.9% increase in September.

Imports rose 4.7% year-on-year in October, slower than September’s 13.2% growth, and underperforming expectations in a Reuters poll for a 9.5% increase, but still marking a second straight month of growth.

The surge in exports pushed the trade surplus for October up to $58.44 billion, compared with the poll’s forecast for a $46 billion surplus and a $37 billion surplus in September.

China’s trade surplus with the United States widened to $31.37 billion in October from $30.75 billion in September. 

Reference: CNBC, Reuters, Forex Live