After a tense few days of vote counting, the drama of the US election has come has reached some sort of conclusion, with Joe Biden president-elect and Donald Trump thus far failing to concede.
For us, the question is how the result will impact the gold price, and more broadly, how it will be affected by the Democratic president after his inauguration on 20 Jan 2021.
The simple answer is that regardless of who had won the presidency, we would argue it will make little difference to the gold price’s wider trend, and that the market’s recent performance is more a knee-jerk reaction to the news than a signal of a new course.
‘The sell-off was a result of a reduced appetite for gold, and the risk protection and safe haven status it affords’
Simply put, the Biden victory triggered a weakness in the USD, correlating with the strengthening of gold in USD terms by 4.3% over the three trading days following the election. It reached a high of $1,965.59 on 9 November. The gain was swiftly reversed on the same day — with a sharp fall of 4.85% — when positive news of Pfizer’s Covid-19 vaccine trials was announced.
The outlook for gold
The key issue, then, is this one-day swing important to the longer-term gold trend? We don’t think so. The USD is biased to weaken over time for many economic and fundamental reasons: partly because it is losing its reserve status over time, and partly due to US bond yields falling to become less competitive with other countries (from December 2019 to March 2020, 10-year yields fell from 2% to 0.31%, an all time low).
As a result, and despite these swings of 4% plus in recent days, we maintain a bullish view on gold overall. Now that the US election is over, there will be a renewed focus on the pandemic and resulting economic uncertainty around the world — despite stock markets reaching all-time highs across various indices.
Charting the gold trend
Using the chart below we have identified three major supports in the gold price that would have to be broken to turn the trend:
- Firstly, $1,838 is the initial support marking the Fibonacci Projection measure of 123.6% rise in prices for March to May 2020
- Then $1,765 is the 100% measured level
- Lastly the 260 day moving average a long term trend tool is at $1,718.
You can see the measures used are valid, as the all-time high this year stalled at $2,075. This is where the 200% Fibonacci Projection of the measured moves is drawn on the chart, confirmed by a Japanese candlestick signal called a bearish engulfing pattern (in-sen tsutsumi).
Uncertainty and central bank buying
As markets revert to focusing on economic uncertainties, and central banks remain strong buyers of gold, we view weakness as a fresh ‘buy’ opportunity below $1,838, and look for $1,987+ by year end (and new highs beyond $2,075 in 2021).
Our 10-year outlook is that gold could reach three times today’s value. This is in part based on a declining USD over that period, and central banks absorbing supplies of gold. And remember, the exchange traded funds market for gold is at an all-time high, trading above 3,000 metric tonnes.