Gold Seeks Direction Amid US Election Uncertainty and Fed Decisions
Commerzbank analyst Carsten Fritsch assessed the recent changes in gold prices, noting that it is trading around $2,740 per ounce. According to Fritsch, the uncertainty surrounding the U.S. presidential elections could have significant impacts on gold prices. The closely contested race between Democratic Vice President Kamala Harris and former Republican President Donald Trump is creating notable uncertainty in the markets. The potential risks of a Trump victory could raise questions about the Fed's independence and complicate monetary policies that might lead to high inflation, which may push gold prices higher. On the other hand, a Harris win could reduce this pressure. Additionally, if the election results are delayed or uncertainty prolongs, gold might benefit from this process and maintain its significance as a safe haven for investors.
Impact of FOMC decisions on gold prices
With the Fed meeting overshadowed by the U.S. elections, its decisions are not expected to greatly impact gold prices. A 25 basis point rate cut is fully priced in for the meeting taking place on Wednesday and Thursday. There is a possibility that Fed Chair Jerome Powell may signal further rate cuts during his press conference.
According to Berenberg analysts, regardless of which candidate wins the election, gold prices can be supported. A Trump victory could create geopolitical volatility, while a Harris win might lead to a weakening dollar and bolster gold prices. Geopolitical tensions in the Middle East further elevate gold's status as a safe haven, making it an attractive investment option, particularly during uncertain times.
Geopolitical tensions and demand for gold as a safe haven
The uncertainty created by the U.S. elections and rising geopolitical tensions in the Middle East is enhancing the allure of gold. In cases of delays or disputes over election results, volatility could increase, rekindling demand for gold as a safe haven. According to KCM Trade’s chief analyst Tim Waterer, political and economic uncertainties can provide support for gold prices.
The expected rate cuts by the Federal Reserve and the current weakness of the U.S. dollar are further increasing interest in gold. A decline in interest rates reduces the cost of holding non-yielding assets like gold, thereby increasing its attractiveness when combined with election uncertainties.
Low interest rates and global demand support the gold market
The Fed's rate cuts are increasing the appeal of gold, allowing it to gain value in a low-interest-rate environment. During periods of economic uncertainty, gold's status as a safe haven is reinforced. The continuation of gradual rate cuts by the Fed, alongside falling inflation, supports gold’s long-term outlook.
Economic developments in China and potential stimulus measures also hold the potential to boost gold demand. China’s efforts to stimulate economic growth could contribute positively to gold prices by increasing demand for metals. With the weakening of the dollar and the impact of China's stimulus, gold could find stronger support in international markets.
High bond yields and the dollar’s impact on gold
The depreciation of the U.S. dollar and high bond yields are among the balancing factors affecting gold's performance. High yields may divert investors' interest away from non-yielding assets like gold. However, a decline in the dollar could enhance interest in gold, creating an attraction for investors holding other currencies.
As the U.S. elections and economic uncertainties persist, gold's capacity to maintain its status as a safe haven will be closely monitored. The impact of election results on gold prices seems likely to continue to evolve based on the dollar’s performance and the Fed's measures.
Current state of gold prices
Gold started the week with a relatively calm outlook. After retreating from record levels of $2,790 towards the end of last week, gold is finding support around the $2,730 band and maintaining its low-volume, sideways appearance at the $2,730 level at the beginning of the week.