Gold Fundamental Outlook: Bearish
- Gold prices[1] could fall if lockdown policies hurt economic growth and inflation prospects
- Ongoing US fiscal stimulus talks adding additional uncertainty to US political landscape
- First vice presidential debate may push XAU/USD[2] higher if Kamala Harris outperforms
Coronavirus Spike Pressuring Lawmakers to Extend or Reimpose Lockdowns
Coronavirus cases continue to rise not only in the United States – the epicenter of Covid-19 – but also around the world, prompting governments to reimpose or extend economically-crippling lockdown policies. While economic data and financial markets swiftly recovered after both cratered in March, the initial rally appears to now be fizzling out as the effects of the stimulus measures that arguably propelled it to these levels wane.
Covid-19 cases now stand at a little over 1 million, and protestors are starting to erupt. This is not only due to social turbulence – e.g. race relations, a topic of the first US presidential debate – but also from citizens who oppose extended and stricter shelter-in-place orders. Measures that contain the virus may come at the cost of revived economic activity, risking an extended and bumpy recovery.
Inflation expectations are reflecting a more pessimistic view of price growth after surging from March through late-July/early-August. Not entirely by coincidence, gold – an anti-fiat hedge – also spiked in part from expectations of rising price growth but also from a weaker US Dollar[3]. However, with this dynamic now wilting, demand for the precious metal may be substituted for highly-liquid havens like the Greenback.
Fiscal Stimulus Stalemate May Rattle Confidence
Another factor that may cause investors to scuttle away from gold and into caves of comparatively less-risky assets is the ongoing statement between Republicans and Democrats over another stimulus package. The
