12 October 2020

Gold Shines Brighter, Settles At 3-Week High

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News shaping
the markets today

     

What’s happening: Gold prices rose on Friday, settling at their highest level in three weeks, supported by a weak US dollar.

What happened: The US dollar is seen as a rival for gold as a safe-haven investment. The yellow metal found support as the greenback recorded losses last week with markets tracking progress on Washington’s fiscal stimulus.

Gold resisted pressure from an increase in risk appetite with US President Donald Trump returning to the White House after being treated for covid-19.

Why it matters: Gold prices remained range-bound last week despite the confusion caused by the US President taking several U-turns related to the next stimulus package. Even from hospital Trump tweeted about the need to inject more funds into the US economy, only to returned to the White House the next day and pause talks on the new package till after the elections.

Later last week, the US President proposed standalone packages for airlines and individual handouts of money. This was rejected by House Speaker Nancy Pelosi in favour of a comprehensive stimulus package. On Friday, the Trump administration presented a coronavirus relief plan worth $1.8 trillion, higher from the earlier proposed $1.6 trillion.

Investors chose gold over the greenback to diversify their portfolio due to all the confusion and later the prospects of a higher stimulus package being announced soon. Gold rose further as it is priced in US dollars in the global market, and a declining greenback made the yellow metal less expensive for traders.

The ICE US Dollar Index, which measures the currency versus a basket of six major rivals, declined 0.6% on Friday.

According to a World Gold Council report released last week, gold-backed ETFs (exchange-traded funds) and other related products recorded net inflows of more than 1,000 metric tons, rising for the tenth consecutive month in September.

The SPDR Gold Trust gained 1.5% on Friday, notching a weekly gain of around 1.1%.

Gold for December delivery climbed 1.6% to end at $1,926.20 an ounce on Friday, gaining around 1% for the week.

Meanwhile, December silver climbed 5.2% to settle at $25.108 an ounce, recording a weekly surge of 4.5%.

What to watch: Gold prices could remain elevated as the US government closes in on fresh stimulus prospects for the economy and news related to the presidential elections. Gold futures traded higher by 0.4% to reach $1,934 an ounce during the Asian session.

The Markets Today

     

European stocks will be in focus today, after closing higher last week.

Context: European equities ended higher on Friday, with markets remaining optimistic about a US stimulus deal.

Details: Despite all the confusion, investors remained positive about the prospects of another coronavirus relief package from the US government. Markets cheered House Speaker Nancy Pelosi’s stance on a comprehensive stimulus package just days after US President Donald Trump announced plans to halt stimulus talks until after the elections.

Investors shrugged off economic news from the European region, with the UK’s economy expanding only 2.1% in August, versus expectations of 4.6% growth. Industrial production growth in France also slowed in August.

Investor sentiment was lifted by the Chinese services sector activity recording stronger-than-projected growth last month.

Semiconductor-related shares in Europe moved higher after NXP Semiconductors issued a strong outlook and Advanced Micro Devices was said it was in talks to acquire Xilinx in a deal worth over $30 billion. Shares of Infineon Technologies and ASM International climbed more than 2.5% each in Friday’s session.

The Stoxx Europe 600 index rose 0.55% on Friday, recording gains of 2.1% for the week. The German DAX 30 rose 0.1%, while the French 40 index added 0.7%, and the London’s FTSE 100 gained 0.7% on Friday.

What to watch: Markets will focus on the speech by ECB’s President Lagarde today. However, no major economic data is due for release today. Investors will also continue to focus on the ongoing stimulus talks in the US.

Other Markets: US indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.57%, 0.88% and 1.39%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Mexico’s industrial production, South Africa's manufacturing production, Russia’s balance of trade, China’s total vehicle sales, foreign direct investment and outstanding loan growth and India’s industrial production and inflation rate.