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Forecast for gold price for 7 October 2020

2020-10-07

2020-10-07

Gold bets on Biden. Analysis as of 07.10.2020Dmitri Demidenko

The precious metal is still stormy, but it may decide on its further moves soon. It’s time to make a trading plan for gold.

Monthly fundamental forecast for gold

Can one fish in troubled waters? The USD fans don’t think so, and buy the greenback amid uncertainty around the US presidential election. However, its opponents believe it’s time to sell dollars: Joe Biden will win anyway, and once it happens, it will be too late. As a result, the financial markets are being stormy and US dollar-related pairs are roller-coasting. Just like gold.

It is believed that the key factors in [XAUUSD][1]’s fluctuations are the US dollar, US treasuries real yield, ETF fund flows, and risk appetite. Gold was traditionally considered to be a safe haven asset, but investors’ increased demand for money deprived gold of that status in 2020.   In spring, the US stock indexes drew the precious metal down in order to maintain positions in stocks. In autumn, the political uncertainty makes investors rush to the USD.

However, gold isn’t the only asset that plays its role of a safe haven badly in 2020. Treasuries can’t do that either. The potential of the Fed’s monetary expansion is limited. Even if the central bank resumed Operation Twist buying long-term bonds, the fall in the bonds yield from current 0.7% to 0% would be only a 7% insurance against a fall of stocks in portfolios.  [S&P 500][2] can collapse much deeper. Unsurprisingly, asset managers chose to increase their cash shares and buy the dollar.

The ETF supporters believe in the gold’s rally and continue building up their reserves, but for the rally to happen, the greenback must devalue and inflation must speed up. Growth in consumer prices will lead to a drop in the treasuries real yield and give the green light to the [XAUUSD][1] bulls.

Gold and ETF holdings

Source: Bloomberg.

In this regard, gold’s reaction to fiscal stimulus talks is understandable. The policy of providing a new relief package is reflationary while the absence of such policies raises deflationary chances. Trump’s illness and calls for talks between Democrats and Republicans made gold grow to $1,920 per ounce. Once the talks were over, the precious metal collapsed.

What’s next? I think the market is tired of Trump, his twitter and frequent mood swings. First, he called on the OPEC to let oil prices fall so that gas got cheaper in the USA, and then he forced Saudi Arabia and Russia into cutting the output so that the US gas and oil industry could recover. First, he demanded that the Fed should weaken the dollar, and then he said that a strong dollar is an indicator of the US economy’s strength.

Monthly trading plan for gold

Every action of the White House’s current tenant gives rise to uncertainty, which is favourable to the US dollar. If Trump loses the election, the [XAUUSD][1]’s bulls will have an advantage. That will also contribute to selling the USD index. If you believe in Joe Biden, buy gold at the medium-term targets of $1,970 and $2,015 per ounce.

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Price chart of XAUUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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