Monthly Review & Outlook – Oct 2020
– Research & Information from Core Bullion Traders.
Each month we will bring you the most up-to-date Macroeconomic information and Gold market news. This information should be used as an overview and summary review only. Nothing contained in this document constitutes an offer to buy or sell securities or commodities and nor does it constitute advice in relation to the buying or selling of investments. It is published only for informational purposes. Core Bullion Traders does not accept responsibility for any losses or damages arising directly or indirectly from the use of this presentation or data.
Macroeconomic Update & outlook
•After collapsing in the first half of the year, economic output recovered somewhat following the easing of measures to contain the COVID-19 pandemic and the initial re-opening of businesses. Policymakers reacted rapidly and massively to buffer the initial blow to incomes and jobs. But the pace of recovery has lost momentum recently. Restoring confidence will be crucial to how successfully economies can recover.
•Prospects for economic growth will depend on various factors, including the likelihood of new virus outbreaks, the impact on consumer and business confidence, and the extent to which government aid for jobs and businesses can boost demand.
•Another wave of rising COVID-19 infections in Europe, coupled with uncertainty about the timing of the next fiscal stimulus in the US, have undermined market sentiment and impacted negatively on most assets.
•The debacle that was the first US presidential debate – and President Trump’s diagnosis of COVID also fuelled a jump in market volatility. Against this backdrop, demand for the dollar as a safe asset has partially recovered, while early October has seen yields on US 10Y and 30Y Treasuries climb to 4-month highs.
•Going forward, with volatility likely to remain elevated in the run up to the US election and with stock markets vulnerable to corrections, the dollar could emerge as a key beneficiary, thereby creating headwinds for precious metals prices in the near-term.
•Beyond these short-term challenges, with further monetary and fiscal measures seemingly inevitable to lift growth momentum, the wider macroeconomic background remains supportive. Moreover, with an increasing amount of negative yielding high-quality bonds, investors will continue to favour precious metals as a hedge against equity risks.
Gold Market Update & Outlook
•The longer term outlook for gold remains constructive despite its failure to break the $1,900 ceiling for any meaningful period. Monetary policy remains conducive to a rise in the precious metal price, as stimulus seems to be a matter of when, not if, and bouts of risk aversion could give rise to safe haven demand.
•In general, gold’s recent price moves reflect the return of its historically negative correlation with the dollar. This itself was a result of weakening risk sentiment, which has led to some tactical selling and profit taking in gold.
•Overall, most commentators remain bullish towards the gold price, as negative yields, caution about stock market valuations and continued dollar weakness should favour gold investment. That said, a period of consolidation may well persist for the rest of 2020 before the metal aims to hit new all-time highs in 2021.
•COVID-19 remains the principal risk to any gold price forecast. A repeat of large-scale lockdowns in major economies will provide an additional boost to gold investment. By contrast, a faster than expect introduction of a vaccine may reduce safe haven demand.
•The upcoming US election could also create market jitters, though its impact on the gold price is likely to be short-lived. Gold should also continue to benefit from a further escalation of US:China tensions.
Contact us today if you would like to know more. We look forward to dealing with you at Core Bullion Traders.
Nigel Doolin is Head of Trading at Core Bullion Traders – A gold trading company based in Dublin, Ireland – he can be contacted directly at: nigel@corebulliontraders.ie or Tel: +353 (0)1 447 5975
Disclaimer & Copyright 2020
Although every effort has been made to undertake this work with care and diligence, Core Bullion Traders do not guarantee the accuracy of any forecasts or assumptions. Nothing contained in this presentation constitutes an offer to buy or sell securities or commodities and nor does it constitute advice in relation to the buying or selling of investments. It is published only for informational purposes. Core Bullion Traders does not accept responsibility for any losses or damages arising directly or indirectly from the use of this presentation or data.
