Gold Outlook: US elections and the Fed to shake gold

Gold’s price rose reaching new record high levels, before correcting lower and stabilizing somewhat over the past few days. We highlight the upcoming period as particularly turbulent, given the US elections today and the Fed’s interest rate decision on Thursday. For a rounder view, we are to conclude the report with a technical analysis of the Gold’s daily chart.  

Gold’s decoupling from the USD continues

The negative correlation of the USD and gold’s price continues to be inactive as despite USD edging lower against its counterparts in the past few days gold’s price failed to benefit from it.

We see the case fundamental issues to continue to affect the two trading instruments in a different manner, while fundamental issues at a geopolitical level, may have allowed for the precious metals’ price to form its own course.

Overall we continue to see the case for the negative correlation of the shiny metal and the greenback to remain inactive, given also the high number and magnitude of fundamental issues tantalizing the markets at the current stage.

Similarly the negative correlation of gold’s price with US bond yields is also interrupted given that the 2, 5, 7 and 10 year US bond yields continued to rise over the past week, yet the appeal of the US bonds remained insignificant for gold traders to switch to US bonds as an alternative safe haven investment allowing for gold’s price to remain relatively stable.

Yet we remain vigilant for a possible resurfacing of the USD-gold negative correlation, especially given the high impact events expected from the US in the week.

US elections to affect gold’s price

Harris and Trump have made their last pitch to American voters before the US Elections today, with rallies in Philadelphia and Michigan respectively.]

The uncertainty regarding the outcome is high given that the two candidates, Kamala Harris and Donald Trump are neck to neck in key-swing states with each candidate providing a very different vision for the US. At the same time, the stakes are also high given that nothing less than the future outlook of the strongest country in the world is in limbo.

The outcome may prove to be messy as also all the seats of the US House of Parliament and a third of the seats of the US Senate are to be contested. Regardless of the outcome, the US election results are expected to be a big market mover.

Additionally, if either of the presidential candidates contests the initial results, volatility may be extended. In regards to gold we see the case for a possible extension of the uncertainty to provide safe haven inflows for the precious metal, while a clear cut win of any candidate could ease market worries and allow for safe haven outflows for gold, thus weakening its price.

We intend to focus on two scenarios with the first being that Donald Trump wins the presidential elections clearly and at the same time the Republicans control Congress in which case the result is getting Trump back in the White House and provides him with the leeway to proceed. In such a case market worries may ease and weigh on gold’s price.

On the flip side, we note that in the long term the unpredictability of the Republican candidate could create some market worries, yet such bullish pressures could be delayed. The second scenario would be if Harris wins the elections, yet marginally and Trump contests the results, or even a more dynamic reaction follows the elections by Trump supporters. In such a scenario we may see gold’s price getting substantial support as uncertainty may rise asymmetrically.  

The Fed’s interest rate decision

Besides the US elections we also highlight the release of the Fed’s interest rate decision on Thursday. The bank is widely expected to cut rates by 25 basis points Fed Fund Futures imply a probability of 98.5% for such a scenario to materialise, practically rendering the interest rate part of the decision as an open and shut case for traders.

Yet the market seems to expect the bank to continue cutting rates also in December before taking a break on January next year. Should the bank in its forward guidance included in the accompanying statement and Fed Chairman Powell’s following press conference imply some hawkish intentions that could contradict the market’s expectations we may see the release weighing somewhat on gold’s price.

On the contrary should the fed indicate that more rate cuts are coming, practically verifying the market’s expectations we may see gold’s price getting some additional support.

Gold Technical Analysis

XAUUSD 4H Chart

• Support: 2685 (S1), 2600 (S2), 2475 (S3)
• Resistance: 2790 (R1), 2900 (R2), 3000 (R3)

Before we start our technical analysis we note that we recalibrated support and resistance levels, in order to accommodate the possibility of higher volatility in the coming days and at the same time to better reflect the data provided by the price action since our last report.

In the past week gold’s price formed new record highs by reaching the 2790 (R1) resistance level, correcting lower and stabilising between the 2685 (S1) support line and the R1. For the time being we note the stabilisation of gold’s price, yet we also note the upward trendline which has been guiding the precious metal’s price since the 8  of August.

Furthermore we also note that the RSI indicator remains between the readings of 50 and 70, implying a bullish predisposition on behalf of the markets for the precious metal. Yet for the bullish outlook to be maintained, gold’s price will have to break the 2790 (R1) resistance line and we set as the next possible target for the precious metal the 2900 (R2) level.

Should the bears take over, we may see gold’s price falling, breaking initially the prementioned upward trendline in a first signal that the upward movement has been interrupted and continue to break the 2685 (S1) support line and actively aim for the 2600 (S2) support barrier.

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