Gold Surges to 5-Week High
Gold rose this week after seeing its biggest gain in 5 weeks. The price of the precious metal reached a high of $1953 for the week ending November 6.
However, the price action appeared to be a reflection of the current election count dynamics.
For one, a Biden win and a divided Congress will certainly keep investors on their toes. Democrats will not be able to pass legislation through Congress without facing Republicans’ resistance. (A Trump win, on the other hand, might trigger a sell-off as market participants could turn to USD for safety).
Secondly, growing prospects to halt vote counts are making investors nervous. Trump said he will bring lawsuits in Pennsylvania, Michigan, and Georgia and will request recounts in other states.
Get our Weekly Commitment of Traders Report: - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.
Get Our Free Metatrader 4 Indicators - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter
Despite gold currently trading mainly based on hopes of a Democratic challenger win, prices could see an acceleration if the US Supreme Court decides to get involved. So far, the Supreme Court has rejected any legal challenges, but with Trump campaigns on the matter continuing civil unrest concerns grow, especially in battleground states. Plunging the country into chaos will affect the prices of gold positively.
Finally, the Fed kept its interest rates unchanged and maintained its current buying program. Gold didn’t see much change to the Chair’s comments, however, with Powell reiterating the need for fiscal support, who wins the elections will play a significant role in how the Committee will make monetary policy decisions going forward.
All the while, coronavirus lockdowns continue to take place globally with many European countries extending restrictions and measures. Despite not having much of an impact now on gold, it’s another factor to keep in mind after the US election finishes.
On a different note, the deadly terror attacks in France, Germany, and most recently Austria on November 2, heighten fears of follow-up attacks. A flight to safety can be very well expected.
With gold having had an incredible rally this week, favorable sentiment could prevail into next week. However, note there is still an absence of a clear market as volatility levels remain highly elevated.
Gold Remains Tilted to The Upside
Despite the current dynamics favoring more upside in the price of gold, bulls need to break to new highs.
The first two hurdles await by the 50% FR at $1960 and by the 62% FR at $1987.
If the correction in (4) turns out incomplete, a rejection at $2K could send prices lower for a fresh multiweek low below 1846. If prices break above the $2K handle, the likelihood of reaching $2025 first will increase. There, price action will determine whether the rally from $1846 is indeed an impulse or not.
Silver Needs $30 Takeover to Validate Impulse
The price of silver in the current market reached a 4-week high of $25.50 only, lagging the momentum of gold.
Structural dynamics between the two commodities remain identical. However, XAGUSD is expected to complete a double zigzag in wave (2), not in wave (4). This gives leeway to medium-to-long term traders as the upside potential is of multiple degrees.
Without a break of the 50% FR at $25.76, chances of short-to-medium term correction in (2) will increase. A break of the said resistance will have to lead to a subsequent break of the 62% FR at $26.76. Otherwise, bears will remain in the battleground game.
Only when prices break above the high momentum candle mark of 29.15 chances of a simple correction in wave (2) will increase dramatically. But only a break move above the high of the $30 handle will validate the bullish impulse.