The gold price will benefit from either party’s win, but short term, the yellow metal faces bearish pressure, is the conclusion of Gary Wagner, editor of the GoldForecast.com.
“Let’s first look at the scenario if Trump wins. Because he is a Republican, he still will need to pass fiscal stimulus in terms of an aid package. He has agreed to $1.8 trillion while the House has been fighting for $2.2 trillion. Although they’re not that far apart, I would expect them to dig in fairly deeply. On the other hand, if we see a Democrat win for the presidential election, I think that fiscal spending will be much larger because of the reforms of the Democrats seem to favor big government spending,” he said.
Either way, gold is set to rise should there be a fiscal stimulus package, Wagner said.
Short-term, the moving average trends are pointing to bearish action for gold.
“Based on the moving averages alone, we have to say we have a bearish slant to a gold market right now,” Wagner said.
The next downside support level is $1,865 an ounce.
“That should definitively hold. We’ve seen it go close to it, but never break below it, not recently,” he said. “If it closes below that price point and we see follow through the next day, we could easily see it move to the low $1,800s, as low as $1,765, that will be the next ultimate level of price support,” he said.
While gold has historically been regarded as a safe haven asset and moves in the opposite direction of risk assets, this inverse correlation has not always held; case in point, last week, gold has fallen several times with equities, and on Monday and Tuesday this week, gold has risen in tandem with stocks.
During Quantitative Easing (QE) 1 in 2009 to 2011, gold and stocks both moved together upwards. When the Fed tapered from 2013 to 2016, gold sold off while equities continued to rally.
On the economy, Wagner noted that most of the growth from third quarter gross domestic product (GDP) came from government spending.
“Personal consumption has to be down from what it was. People still have to eat and they’re spending money but they don’t have the disposable income,” he said. “When you allocate $3 trillion on an aid package, that’s government spending to the 10th degree, and that is the biggest problem we’re facing now.”
Real GDP grew 33% on an annualized basis in third quarter, according to data released last week by the Bureau of Economic Analysis.
Author: David Lin