Shifting political power in the US – a catalyst for gold?
From a gold market perspective, the inauguration of Joe Biden as US President brings a number of changes and sheds new light on priorities, especially in the field of fiscal policy. Therefore, the weakening of the US currency does not come as much of a surprise – Joe Biden’s win is tantamount to hopes for more stimulus to combat the economic effects of the COVID-19 pandemic.
As of this writing, the SPOT gold price in US dollars was trading at around $ 1,870 / oz, which is equivalent to an increase of almost 1% during the day. We can also observe an upward move on the charts in the Swedish currency – the metal, after few days of consolidation below SEK 15,600 / oz, at the climax exceeded the aforementioned resistance and reached a level slightly above SEK 15 613 / oz. Currently, the gold exchange rate fluctuates around SEK 15 400 / oz.
The recent movements in gold are likely to be a response to the expectations of financial markets for the imminent implementation of the next stimulus package. From the very beginning, Joe Biden advocated that he would make every effort to support the American economy as much as possible with a powerful injection of capital. The last proposal of the US president is equivalent to 1.9 trillion dollars and assumes aid on three basic levels:
- streamlining the vaccine distribution program (over $ 400 billion);
- providing direct financial assistance to US households (approximately $ 1 trillion);
- support for businesses and communities hit hardest by the pandemic (approximately $ 440 billion).
Has the gold market trusted the new US president?
In a comment on yesterday’s events Margaret Yang – Strategist at DailyFX – raised the issue of Joe Biden’s announcement in the context of the “dovish” attitude of the Federal Reserve to introducing potential changes. Yang, however, extended the issue to include the mainstream followed by central banks around the world. “There are more benefits to gold in a slightly wider horizon, given that central banks will remain in a dovish mood for an extended period on a global scale, ” Yang said.
On the other hand, Stephen Innes – Axi Market Strategist – drew attention to the potential threat to gold posed by the persistently high level of 10-year US bond yields. “The background so far and all the favorable winds that accompanied the previous increases in the gold market invariably remain present, but I suspect that the direction of gold travel will be dictated by the yields on treasury bonds ” – the specialist pointed out.
Still, recent changes to the charts suggest that investors are taking Joe Biden’s promises very seriously – the vision of potential gains is so strong that although yesterday’s events have brought nothing to which the markets have not been able to get used to, gold’s reaction has really been promising.
“It is quite fascinating as there is nothing new about the policy announcements. Most of today’s gains are simply due to investors who believe the Biden administration will work closely with the Treasury for the first 100 days to provide a significant boost,” said Edward Moya, OANDA’s Senior Market Analyst. Phillip Streible – Chief Market Strategist for Blue Line Futures – shares a similar view, saying that “There is much optimism in the markets and hope that Biden will adopt additional stimulus measures, making it a priority.”
The transfer of power in the USA to the president on behalf of the Democratic Party was interpreted from the very beginning as the most favourable scenario for gold. Therefore, the question facing investors is how quickly Joe Biden will meet expectations and bring about a consensus on a new wave of support. Given the scale of the problems facing the US economy, we will find out soon enough.
Disclaimer: This article is for informational purposes only and is not intended as an investment analysis or recommendation to sell or buy commodities. Tavex is not responsible for any decisions made based on this information. Investing is associated with opportunities and risks, and the market value of commodities can both increase and decrease. Past or future yields on the commodities and financial ratios shown above do not represent a promise or an indication of future earnings.