Weekly markets round-up for StoneX Bullion

Welcome to a very brief overview of the recent performance in the markets. The essentials are captured in the table below and each week we will show a chart of interest.

Last week we started by saying this: “We would not be surprised to see reduced activity in the gold and silver markets over the coming fortnight as the markets watch every nuance of the Presidential election. This could lead to volatility in prices as they tend to move more erratically in thin conditions”.

Partly right! Conditions are indeed thin across the board in the precious metals sector, but what has happened, thus far, at least, is that the metals have continued to trade ranges, although in both gold and silver these ranges have been narrowing. The lower of the two charts below tells the story; with no market stakeholder really prepared to take aggressive positions in the face of the election and continued uncertainty due to the resurgence of the virus, the dollar is currently the key driver.

Of course, the dollar is reacting to all these external forces, so by default the metals are reacting to the rest of the outside world, but by default and in very muted fashion.

Form a technical analysis standpoint, both gold and silver are forming “triangle” formations, and almost invariably when an asset breaks out of a triangle it can move sharply. The basic expectation is that the move would be broadly equal to the size of the base of the triangle. So a break-out from this gold triangle could imply a move of approximately $70. In which direction is a matter of opinion and we are not permitted to make forecasts that specific, so here are some factors to help making a choice: -

• Election outcome (bullish regardless, in our view)
• Yo-yo in Washington over the stimulus programme
• Outcome of the next Federal Open Market Committee meeting (which is 4th and 5th November, immediately after the election) and the Board’s guidance about interest rates and asset purchase programmes
• Virus stranglehold on the markets due to uncertainty
• Geopolitical risk - already all factored in? Gold’s response to geopolitical changes currently muted; e.g. the tensions between India and China; China imposing sanctions on Boeing Defence and Lockheed Martin (Taiwan issues).

Meanwhile in the background the Diwali Festival, the most important gifting season for gold in the Hindu Community, is a fortnight away and domestic interest Is picking up. Last year’s Diwali was 35-40% below the 2018 Festival in places, due to higher gold prices and economic uncertainty. This year will be very interesting as there is a lot of pent-up demand in India, but they still have a mammoth issue with the virus. In the first half of this year Indian jewellery demand was 117.8t, compared with an average for the first halves of 2010-2018 of 286.6t.

The World Gold Council Gold Demand Trends for Q3 2020 is released this Thursday.

Short term gold; triangle formation

Gold and the inverse of the dollar