Gold price falls rises on stimulus concerns

Gold price falls rises on stimulus concerns
Written by:
Michael Harris
13th October, 19:14
  • A stronger U.S. dollar pushed gold prices lower as investors worry that new stimulus plan won’t be passed soon
  • Gold is popular among investors as it’s considered a hedge against inflation and currency devaluation
  • Prices of the yellow metal are now approaching the 4-month supporting trend line near $1,890/ounce

Gold spot prices are on the brink of closing nearly 1.5% lower as investors are worried that the new stimulus plan won’t be arriving anytime soon. 

Fundamental analysis: Dollar strengthens 

Gold prices bounced on Friday driven by recent optimism regarding the new stimulus package in the U.S. There’s a general belief that prices of the yellow are more appealing in the eyes of investors as a hedge against inflation. 

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Robin Bhar, an independent analyst, noted that while a new stimulus package was not likely before the election due to time constraints, it would “definitely” be passed after it.

“That would be a bullish catalyst for gold,” he added.

Gold has been a popular pick among investors this year as it’s considered a hedge against inflation and currency devaluation following the extraordinary stimulus on a global level to curb the effects of the pandemic. The yellow metal has jumped almost 27% year-to-date.

On Monday, a White House spokesperson said Senate Republicans will support President Donald Trump’s intentions when it comes to coronavirus relief legislation.

“There’s still plenty of volatility as we head towards the U.S. election, but over the medium-term, monetary stimulus that’s already in the system will take a long time to be withdrawn and that’s supportive for gold,” Xiao Fu, an analyst at Bank of China International said.

Right now, Joe Biden is leading the presidential race, according to the polls. 

“A so-called ‘blue wave’ would likely pave the way for a larger fiscal support package, which in turn could exert more upward pressure on bullion. A protracted delay to the U.S. elections outcome could also spur risk aversion in the interim,” said FXTM market analyst Han Tan.

However, the dollar strengthened today on negative reports related to COVID-19 vaccine, therefore pushing gold prices lower. 

Technical analysis: Gold prices retreat

Today, gold’s gains were capped by a stronger dollar. Prices of spot gold were trading at $1,921.21 per ounce earlier this morning before sharply correcting below the $1,900 mark before New York opened. 

Gold daily chart (TradingView)

The price action is now approaching the 4-month supporting trend line near $1,890/ounce. This support line is further boosted by the 200-DMA, which comes at $1,865, and therefore offering a solid opportunity to buy gold.

Summary

Gold prices dropped today on falling hopes of a new stimulus package in the U.S. As a result, spot gold price is trading below $1,900/ounce once again.

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