Gold price action printed an impressive 4% weekly gain in the wake of the US election. The precious metal gained ground largely on the back of broad-based US Dollar weakness, which looks fueled primarily by a prospective Biden presidency. With election risk seemingly in the rearview mirror, the VIX Index, or fear-gauge, slid sharply as well. This likely reflects improved market sentiment and liquidity conditions – a theme recently highlighted as a potential catalyst for higher gold prices.
GOLD PRICE CHART WITH US DOLLAR INDEX OVERLAID: DAILY TIME FRAME (25 JUN TO 06 NOV 2020)
Chart by @RichDvorakFX created using TradingView
Looking forward, gold has potential to continue climbing with precious metals surging as the US Dollar sinks. The US Dollar might remain under pressure with expectations for stock market volatility down-throttled, which by extension, could open up the door to higher gold prices. This is seeing that the price of gold generally maintains a strong inverse relationship with the US Dollar. An accommodative Federal Reserve further underscores the anti-fiat narrative with FOMC asset purchases set to continue at the current pace and push the Fed balance sheet further above the $7-trillion mark.
GOLD PRICE CHART WITH 5-YEAR REAL YIELDS OVERLAID: DAILY TIME FRAME (01 JAN TO 06 NOV 2020)
A breakout in real yields might give gold bulls a headache, however. Gold price action tends to move in the opposite direction of real yields as illustrated in the chart above. Wavering inflation expectations could present a headwind to gold price action, which could gain traction if stimulus deal hopes fail to materialize.
Also, as coronavirus concerns flare up again, the threat of a material slowdown in business activity has potential to undermine inflation expectations and steer gold prices lower. That said, it seems like the direction of the US Dollar is the dominant driver of gold price action at the moment with precious metals broadly mirroring the Greenback.