28.09.202017:17 Gold prospects ahead of US presidential election

Long-term review

Exchange Rates 28.09.2020 analysis

Last week, gold plummeted nearly 5%, having posted the steepest fall over the recent 6 months.

Remarkably, the drop occurred amid the decline of the US stock indexes, which seems strange. Indeed, gold has been viewed as a traditional safe haven asset that tends to gain ground on the back of waning demand for riskier assets.

The thing is that investors rushed to sell the precious metal with a view of holding open positions on equities.

Besides, the gold bulls were caught off-guard amid the sharp advance of the US currency bearing in mind the crater of the US budget deficit and amid fears over the fragile recovery of the national economy contained by the COVID-19 pandemic.

The greenback closed last week with the strongest weekly gains since early April. Its index surged to 94.7, the highest level since July. The robust rally of the US dollar badly affected the gold value. The metal broke support of $1,900 and tested two-month lows of $1,849.

If the US stock indexes continue their downtrend, the next target for the dollar bulls could be the marks of 95.70 and 97.70.

This scenario suggests a further bearish trend for gold.

Gold bears could be interested to see the gold price to fall below a 100-period moving average that is nearly $1,845. If this happens, they will expect a further fall towards $1,822 that is 61.8% Fiboncci correction.

The nearest strong resistance is seen at $1,875-1,877. Its true breakout could push the price up towards $1,900.

Meanwhile, the US currency might stumble over uncertain fundamentals and a serious technical resistance which could reverse the greenback's trajectory in the medium term.

Experts reckon that if the US dollar index reverses downwards aiming for the level below 92, this will propel the gold rally to record highs amid the next bullish wave.

We cannot rule out a further downtrend of gold. However, uncertainty about the outcome of the US presidential election is creating turbulence. Besides, the US Federal Reserve will have to resort to extra easing its monetary policy. Thus, we maintain the bullish outlook for gold, UBS analysts state their viewpoint.

They project the gold price to soar to $2,100 per troy ounce next year.

Citigroup believes that gold is capable of hitting new historic highs before the end of 2020.

The presidential election could be a powerful catalyst for the gold rally and extreme volatility in Q4 2020 despite the fact that there is no clear-cut pattern of the gold dynamic or its volatility before/after the presidential election in the US, Citigroup experts comment on the situation.

They think that investors have not priced in the election outcome yet. So, gold could spike more than $200 from the current level.

Performed by Viktor Isakov,
Analytical expert
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