Market Update – 14th October
The US equity market is holding the FED/ US Government hostage, craving more and more stimulus to support the US economy. Whether the money being printed is supporting the US economy in a positive matter is an interesting question. For US citizens and USD holders, their cash is becoming worthless. Gold is currently up roughly 25%-30% as investors piled in buying protection against the oncoming inflationary pressure.
There are a number of events taking place that will likely impact the next move on gold.
With the Democrats taking the lead in the US Presidential Election Polls the devaluation of the USD may continue. According to CNN, Joe Bidden is in a better position at this point in the campaigns compared to any challenger since 1936. Biden is reportedly ahead in the polls, 55% to 43% among likely voters. If the Democrats do take office, we should expect even more stimulus than what has already been provided by the US Government. With the polls at the current levels, the market is beginning to price in an even weaker USD, which may support higher gold prices. However, this all rests on the second stimulus check clearing, and soon.
Any sign of the US Government putting a stop to the stimulus and free money, they US stock market crumbles. Last week we all witnessed this first hand during Trump’s twitter antics. The US government is set to vote on the next stimulus bill on October the 19th. McConnel, the Senate majority leader, said the first order of business is to vote on a smaller stimulus bill worth roughly $500 billion. Therefore it puts the questions forward on whether a bill will be past prior to the US elections. It all hangs in the balance.
GOLD – Daily Charts
The past month trading gold has been difficult with the choppy movements. Taking a look at the longer term picture we can see a pennant breakdown and a move back into an inclining channel formation. Gold has been teasing a potential breakout to the upside of the channel formation.
GOLD 4 Hour Charts
The 4 hour charts are showing a rising channel formation or a bear flag. The question is what news event will result in weaker gold prices. A resurgence into the USD is the most likely scenario.
Yesterday news coming from Johnson and Johnson reported they had stoped clinical trials on their covid-19 vaccine. This resulted in a run higher on the USD, and gold consequently fell over night. Additionally, news broke about the stimulus package not coming into effect until 2021.
Goldman Sachs strategists have suggested to sell the USD on positive Biden news and vaccine hopes. On the other hand, buy USD and SELL gold on negative stimulus and vaccine news.
Traders will be watching for a break below the bear flag formation to confirm a move lower, or a rally above the negative pennant trend line to enter long positions.
As always we will keep you posted in the trading floor on any set ups we take.
Let’s see how this plays out.