Gold gains on dollar slide as U.S. election drags on

Gold rose on Friday en route to its best week in more than three months as the dollar slid on uncertainty surrounding the U.S. election outcome, with bets for continued pandemic-led stimulus and accommodative monetary policy bolstering bullion’s appeal.

Spot gold rose 0.2% to $1,953.21 per ounce. Prices jumped by 2.4% on Thursday, setting them up for a 3.9% weekly gain, which would be gold’s best since late July.

U.S. gold futures rose 0.4% to $1,954.20.

“The outlook for gold is positive,” said Michael Hewson, chief market analyst at CMC Markets UK, citing the political uncertainty weighing on the dollar.

“It could get messy … The U.S. Federal Reserve is likely to be much more interventionist as a result, because politicians will be too busy squabbling, and the dollar will continue to fall.”

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CNN Business/Anneken Tappe and Clare Duffy
Fed keeps interest rates near zero and warns of further pandemic strain on the economy

The Federal Reserve left interest rates unchanged at ultra-low levels Thursday, and warned that the Covid-19 pandemic will continue weighing on the economy in the short term.

“The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” said the central bank in its November monetary policy statement.

For the months to come, the Fed committed to more asset purchases at least at the current pace of $80 billion Treasury securities and $40 billion agency mortgage-backed securities per month.

The Fed slashed interest rates to near zero in March in the wake of the pandemic crisis. Since then, the central bank has launched various lending facilities to help the economy recover. An internal survey in September showed the central bank officials expect to keep interest rates on hold through 2023.

But Powell has repeatedly called for more government stimulus to go along with the monetary stimulus the Fed is providing, an appeal he repeated on Thursday. With no clarity on who will win the presidential election, it’s uncertain what kind of stimulus package the next administration will put forward.

“We’ll have a stronger recovery if we can at least get some fiscal support,” Powell said. He added that health care policy to address the pandemic — vaccines, therapeutics and measures to control the spread of the virus — are “absolutely critical to the economy,” especially as cases continue to climb in the United States.

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CNBC/Yen Nee Lee
There are ‘pretty high’ risks of the U.S. economy backtracking, Moody’s economist warns

The Fed’s two-day meeting is expected to end Thursday with no new proclamations from the central bank, and Chairman Jerome Powell will be sure to distance himself from the election uncertainty.

But he is likely to be asked about one of the most pressing concerns in markets — fiscal stimulus to help the economy recover from the effects of the coronavirus. That topic has been a political hot spot, and it could be resolved in several ways depending on how the election turns out.

“With a GOP Senate majority, the expectations for stimulus is absolutely getting dialed back, which is a good part of why yields are plummeting the way they are,” said Julian Emanuel, equity and derivatives strategist at BTIG. The 10-year Treasury yield went from a high 0.94% Tuesday night to about 0.75% Wednesday.

Strategists say the Fed will not address the election, which was unresolved as of Wednesday afternoon with the outcome in several key states uncertain.

Powell is likely to be asked about the need for fiscal stimulus, which Congress failed to provide ahead of the election. On Wednesday, Senate Majority Leader Mitch McConnell reopened the topic, saying it would be important to pass a package before the end of the year.

“Powell himself has made very clear that the most important thing is getting cash into people’s hands. I think he has to [comment], and I think it may be a market negative, given the fact that kind of rhetoric reinforces the limited effectiveness of the tools in the Fed’s tool box,” said Emanuel.

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Bloomberg/Yvonne Yue Li
Gold Surges on Dollar, Stimulus Hopes With Election Outcome Near

Gold touched a six-week high and copper advanced for a fourth straight session, boosted by a declining dollar and the outlook for further central-bank stimulus as investors await the final outcome of the U.S. presidential election.

A gauge of the dollar touched a two-year low, with investors pricing in a likely Joe Biden presidency. Hopes for more monetary stimulus also boosted metals, with the Bank of England expanding its bond-buying program and the Federal Reserve saying further monetary and fiscal support is likely needed.

The prospect of greater clarity on the election outcome may help reduce volatility in commodities after a tumultuous run-up to the vote, analysts said. And while Democrats face long odds for taking the Senate, pointing to a smaller Covid-19 relief bill, pressure is rising on lawmakers to act with the recovery losing steam amid a spike in virus cases. Bullion topped its 50-day moving average, another bullish sign for traders who follow charts.

“Investors are betting that a potential Biden win will pave the way for a bigger fiscal stimulus package than would have been the case if Trump was re-elected, while a Republican-controlled senate will make it unlikely that Trump’s corporate tax cuts will be rolled back,” Fawad Razaqzada, market analyst with ThinkMarkets, said in a note.

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