Hopes on fiscal stimulus - Gold bulls fighting for 1,900 USD

Oktober 14, 2020 13:00

Source: Economic Events October 14, 2020 - Admiral Markets' Forex Calendar

The picture for Gold hasn't substantially changed over the last days – despite the short-term turbulence initiated by a tweet from the US president last week.

Last week on Tuesday, US President Donald Trump briefly caused an uproar when he instructed Republicans not to negotiate any further US stimulus packages with the Democrats until after the presidential election.

As a result, Gold dropped to below 1,900 USD, but closed the last week of trading still above that level after Trump "re-opened" negotiations on Thursday after realizing that such a move could be damaging after the resulting drop in US equities and in the lead up the US presidential election on November 3rd.

Yesterday, the yellow metal again dropped below 1,900 USD after US core inflation came in at 1.7%, slightly below the market consensus of 1.8%, thus disappointing Gold traders betting on a near-term drop in real yields significantly back below -1%.

But taking a step back and looking at the bigger picture we can see a few key dynamics:

  • The political legs of Trump's move were rather short
  • In reaction to US inflation data the overall US economic outlook leaves Republicans and Democrats with no other choice than to deliver a much needed Corona relief package, financed with freshly printed US-Dollars from the US central bank FED.

That expectation might also explain why recent data from the Commitment of Traders Report points to further bullishness among large speculators which keep on increasing their bullish Gold bets, potentially in anticipation of such an inevitable move from the FED and the US government.

Still, we remain cautious in regard to long engagements below 1,975 USD, technically and without a sustainable break higher the drop back below 1,900 USD leaves a re-test of the region around 1,850 USD an option.

If we get a break above 1,975 USD, a run as high as the current yearly and All-Time highs around 2,075 USD and even higher can be expected:

Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between May 29, 2019, to October 13, 2020). Accessed: October 13, 2020, at 10:00 PM GMT. Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of Gold fell by 10.4%, in 2016, it increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, and in 2019, it increased by 18.9%, meaning that in five years, it was up by 28%.

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