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(Wallace Refiners) Gold hit a one-month low this week amid election uncertainty and renewed coronavirus fears. But the million-dollar question is “when will the metals start acting like metals,” said RJO Futures senior commodities broker Bob Haberkorn.
The precious metal tumbled to a low of $1,859 on Thursday and was unable to recover significantly higher at the time of writing.
“We have the coronavirus uptick, stocks are down, the dollar is up. The markets were anticipating a stimulus deal, but there’s no stimulus coming between now and the election,” Haberkorn told Wallace Refiners on Wednesday.
If the selloff gets worse right before the election, gold will first test $1,850 an ounce and then $1,825, Haberkorn noted.
“We could see $1,825. If you get more announcements of shutdowns because of coronavirus, equities could get spooked even more, which will probably, in turn, pull gold and silver lower ahead of the election,” he said.
Just two weeks ago, markets were almost sure of a Democratic sweep at the polls. Now, the situation seems to be more muddled.
“If you asked me two weeks ago, who was going to win, I would’ve told you, Biden. If you asked me today, I’m starting to think Trump’s going to pull this thing out based on some of the data that’s been coming out. You could see a Trump win, which would see a significant rally in the equities that night and then a significant rise in gold and silver, along with the equities, coupled with the hope that a stimulus deal is coming through,” Haberkorn noted.
If Biden wins, the metals, including gold, will rally even more because his stimulus package is likely to be significantly higher than Trump’s, he added. “After we get past the election next week, you should see a rally in the precious metals because the likelihood of a stimulus deal coming through will be that much more.”
What investors need come next week is for gold to start acting like gold — by providing safety. Right now, even though everything feels risk-off, most of the safe-haven bids are directed at the U.S. dollar, Haberkorn explained.
“Metals need to start acting like metals here. They’re so tied with equities, and it’s been going on since the coronavirus hit. When equities go down, metals go down. And the problem right now is that the same reason why metals go up is why stocks are going up — government stimulus and money printing,” he said. “So, that’s the million-dollar question, when do metals start acting like metals?”
Gold’s decoupling from equities might come as soon as the markets get through the election, Haberkorn said.
“We’ll get to the point when the market just had enough of stimulus and central bank bailouts, metals will see a great year in 2021,” he stated. “If Biden wins, you’re going to get an equity selloff, and then you’ll probably see gold and silver, maybe start that disconnect because the anticipation of a much larger stimulus would be a reason for gold and silver to rally.”
Given all the macro drivers, gold and silver should be higher than the current levels, especially considering all the money printing and the metals’ safety appeal, Haberkorn added. “The best thing I heard through this whole year is that the Federal Reserve can’t create more gold or silver. But they can create dollars.”
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