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.
Obviously, the key driver in the gold market over the past few days has been the health of President Trump and although he is not yet back to full health the sounds coming out of Washington are positive and there is the possibility of an early discharge. Alongside this is the continuing negotiations between Speaker of the House Nancy Pelosi and Treasury Secretary Steven Mnuchin. The Democrat $2.2 trillion bill was passed in the House last week but won’t get through the Senate and although progress is being made the two parties are still some way apart, with Mr Mnuchin arguing for $1.6trillion. The President is pressing for a conclusion.
The protracted nature of the negotiations is still informing market sentiment and although the President’s apparent stability is aiding risk appetite in the short term, the underlying tone is still nervous. Views about the outlook for the equities are mixed but the overall tone is cautious, especially as the election is now only four weeks away.
We feel that the election outcome will be positive for gold regardless; if President Trump retains the Oval Office then geopolitical tension, notably between the United States and China, will persist; if Mr Biden wins then (subject to the make-up of Congress) the fiscal taps may well be turned on, which would feed into inflationary expectations. While inflation may seem some way away, the targeted funding through the Fed’s balance sheet expansion has been finding its way into smaller federal states and private hands, but has not yet been spent. When confidence returns then there is likely to be a wall of spending developing, which could well feed into inflation.
Offset against this, of course, is the likelihood that once economic confidence returns some professional investors may will lighten their gold holdings so the trajectory for the gold price could well be bearish in the short term but building for the longer term.
And a contested election result will of course breed uncertainty.
Meanwhile the figures from the U.S. Mint for the month of September show a fall in gold coin purchases to just $42M, sharply down from $187M in August, and a small fall in silver expenditure (see chart) to $69M, from $73M in August. Silver tonnage was fractionally higher. Gold demand is at last picking up in India, but there is little sign of much interest elsewhere in Asia. Here, too, there is much pent-up demand waiting to be unleashed but with the COVID-19 still on the march, we any have a whole to wait yet.