Happy Friday, traders. Welcome to our weekly market wrap, where we take a look back at these last five trading days with a focus on the market news, economic data and headlines that had the most impact on gold prices—and may continue to into the future—as well as the charts for silver, the US Dollar and other key correlated assets.
As we talked about on Monday and as well all anticipated to be the case, this has been a very wild week. Stock markets around the world have seen some strong beats of volatility, while for precious metals prices, it’s been more about (upward) velocity. At the time of writing on Friday afternoon, gold spot prices are considerably higher to close the week and are consolidating gains just above $1950/oz. Silver looks strong as well, enjoying new monthly highs above $25.50.
The reverberations of the still-contesting US federal elections have moved so quickly through the gold market this week that there doesn’t seem to be much point to doing our usual format of recapping each day’s action; what happened on Tuesday’s book of business may as well have happened a year ago. With that in mind, today we’ll discuss out the yellow metal found itself at Friday’s heights, how markets and risk-appetite seem to be absorbing the projected results of the elections (so far,) and touch briefly on the point of this week’s economic calendar that, in any other month, would have been the main focus of US Dollar and metals traders this week.
Gold Prices Have Reached Six-Week Highs
Having appreciated (at the time of writing) by more than $70/oz since Sunday night’s opening bid, it’s safe to say that gold spot pricing has been one of the biggest beneficiaries of the market’s reaction to Election Week in the US. Unsurprisingly, silver prices have gained as well, to the tune of roughly $2/oz in spot markets. It would have been safe to say at the start of the week, before election results started coming in, and even on Tuesday night/Wednesday morning at first blush, some volume of gold-buying was being driven by pure safety hedging and market uncertainty. In the second half of the week, I think it’s clear that the yellow metal’s surge has been in direct response to the US dollar falling as investors have been heartened and encouraged to exchange Dollar-denominated cash for assets; To a large degree it’s been a move to risk assets like equities, yes, but money is also moving in to commodities as a speculative investment position, as well as reliable inflation protection. Gold, of course, fits both descriptions.
Markets Are Generally Pleased by US Election Results and Expectations, but Remain Worried About New Lockdowns
While many observers had predicted that the most bullish election result for US stocks (indeed, for stocks globally) would be a “Blue Wave” that turned over the White House and put the US Congress fully in control of Democrats more willing to spend big on fiscal stimulus, equities markets have made strong gains this week despite that Wave having not quite materialized. By the end of business on Wednesday, US stock benchmarks had made their biggest intraday gains in roughly five months.
We’re still waiting for a certified result in the US Presidential race at the time of writing, and odds are good that we will still be waiting when I talk to you again on Monday. That said, the general wisdom of the markets this week seems to be that the current projected results of the 2020 federal elections—a Democratic administration and a still-split legislature—at the very least will support that status quo of recent months. And while it’s a tremendous understatement to say that there are serious worries about the economic outlook for the US if the “status quo” (i.e., total gridlock and stalled stimulus plans) remains in place, we can’t really argue that equity valuations have continued to rise. This seems to be part of why investors are willing to put their money back on the table. For now.
As we wrap up the week with the race for the White House balanced on a knife edge, stock markets are down for the day (and were mildly lower at the end of Thursday.) To some extent this is probably a bit of profit taking, and we may see the same with metals prices before close of business. But there is also pressure on risk appetite, as investors and traders are becoming more confident in a Biden victory speech (however long delayed,) coming from the resurgence in Covid-19 cases in the US and worldwide, which certainly did not take the week off. As the focus on US elections fades from markets, it will be hard to turn away from the intensifying lockdowns in major European cities and the accelerating case count in the US which reach a daily increase of over 100,000 on Thursday. This could be pushing us towards a snapback in equity prices by the end of the month (dependent on the timing of a certified US election result,) and we’ll be looking to see if such a move lifts gold further, or brings King Dollar back to the field.
The Fed Stands Pat, While Labor Market Data Has Been Uninspiring
Somewhat buried under the noise of this week, the FOMC held their November meeting as scheduled, releasing the usual statement on Thursday. True to the expectations of most analysts and observers, Jerome Powell and Co. stayed out of the fray, introducing no new forward guidance and no relevant adjustment to the currently super-easy stance of monetary policy.
NEW: Fed says US economy and employment "continued to recover," still holding rates steady at near-zero. Few changes in the FOMC policy statement compared to Sept FOMC pic.twitter.com/M2325JqxmF
— Brian Cheung (@bcheungz) November 5, 2020
While things remain unchanged today, we look ahead to the final 2020 FOMC meeting in December at which point there may be strong expectations for more explicit forward guidance from the Committee. Hopefully the question of who will be sworn into the US presidency in January will also be settled by then, as well as the makeup of the next Congress; This would likely play into the Fed’s updated outlook in December as well.
Lastly, this was also Jobs Report (for October) week. The hard numbers on Friday have looked relatively positive: more jobs were added to non-farm payrolls last month than expected and the headline unemployment rate dropped further. But by lunchtime, economists and observers were already following up the Jobs Report with a warning that we’ve likely seen the very last legs of the summer’s fiscal stimulus bill, and that the labor market looks dire if the US consumer is to go much longer without additional support even as the risk of new lockdown measures grow.
From the viewpoint of early Friday afternoon, it seems almost certain that the US Presidential race will not be settled and finalized before sometime next week at the very earliest. While it’s possible that Monday—if not over the weekend, depending on the pace of recounts in tightly-contested states—we have an initial announcement of a winner, markets could easily get riled up over the next ten days if any number of attempts to relitigate the election in US courts are announced. Until we have a certified result, this will continue to dominated the market sentiment for all major assets, including gold. The economic calendar has a few spots of interest next week, mostly the most recent report on US consumer price inflation, and it’s somewhat possible that we might get some interesting commentary from Fed officials with regards to the election outcome(s).
For now, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I’ll see everyone back here on Monday for our preview of the week ahead.