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Gold stumbled on fading hopes of stimulus before U.S. election

calendar 23/10/2020 - 19:49 UTC

Gold (XAU/USD-spot) closed around 1903.12 Thursday, stumbled almost -1.11% on higher USD despite Pelosi signals progress of CARES Act 2.0. The US dollar index (DXY) jumped almost +0.40% as USDJPY surged +0.25%, while EURUSD slumped -0.38% and GBPUSD plunged -0.48%. Both EUR and GBP were under stress on COVID-19 and Brexit uncertainty. Additionally, British Pound also slips on another fiscal stimulus of over £13B on an enhanced job support scheme amid targeted corona lockdown 2.0 in various parts of Britain.

On the other side, USD was also buoyed amid fading hopes of an imminent CARES Act 2.0 and better than expected U.S. jobless claims coupled with decreasing lead of Biden over Trump in some swing states (battlegrounds). Also, increasing cases of COVID-19 infections in the winter & festival season on both sides of the Atlantic (U.S.-Europe) is positive for cash (USD) and negative for gold-old correlation back in April during the peak of 1st wave.

An unexpected Trump win would be negative for climate change agenda, extensive usage of solar panels where silver is being used; i.e. it would be negative for silver demand, which in turn would also drag gold. Similarly, the expected Biden win would be positive for Silver as-well-as Gold. But overall, as per polls of polls, Biden may be on the way for a comfortable victory as he slated to win 279 vs Trump’s 125 in terms of the Electoral College, the passport of the White House; 270 is the magic figure.

In national popular votes, Biden is now leading Trump by around 8.7% (51.4% vs 42.7%). The national opinion poll lead of Biden decreased from a prior 10% as Trump looks and sounds sharper after a quick recovery from COVID-19, offered free anti-body cocktails to all Americans as a ‘proven therapy’. Remember, in 2016, Clinton won in terms of total national votes (+2.1%), but Trump got the White House passport in terms of an unexpected win in Electoral College votes (304 vs 227; others 7). In 2016, Trump was helped by 4 defected Democrat states in terms of Electoral College votes.

In 2016, Democrats won a net gain of 2-seats in the Senate and 6 in the House (Congress), but Trump was able to retain control of both chambers. In the gubernatorial (Governor) elections, Republicans won a net gain of two seats. Various other states, territorial, and local races and referenda were held throughout the year. In brief, Trump was able to win a trifecta in the 2016 election (White House, Senate, and Congress) and he was a majority President, gone for tax cut fiscal stimulus and various deregulations coupled with modification of various trade deals including TPP and the initiation of a trade war with China.

But in 2018, after the midterm U.S. election, Trump became the minority President as Democrats won the Congress by 41 seats, while able to won the Senate by a mere 2 seats. This is a unique situation after 1984, where the U.S. President is a minority and caused a significant policy logjam at the Oval Office because Trump has to depend on Pelosi for every major bill/legislation. In the U.S., Congress has the ultimate legislation power, while the President has also the veto power. The political and policy paralysis at home forced Trump to focus more on the international front from China, NK, Iran, and EU/NATO.

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The CARES Act 2.0 is the latest example of a victim of U.S. politics as Trump has no power to spend without the approval of Pelosi (Congress). Now the stimulus addicted market is discounting that Biden may be able to win the trifecta in the Nov election, paving the way for at least $2.2T CARES Act 2.0 by Jan’21 (after the formation of new Congress/Senate). The market is now basically discounting whether it would be Trump lite or Obama 2.0 under Biden as the probability of Trump 2.0 is fading, but not to be ruled out entirely.

Technical Outlook: Gold Spot (XAU/USD):

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