Each of the precious metals were sharply higher on Tuesday morning as the U.S. is just one week away from electing a new president. Despite other favorable economic indicators, the uncertainty and vitriol swirling around the election seems to have triggered a wave of safe-haven flight into gold.
During early trading, the spot gold price held near a one-month high of $1,290/oz. Platinum and palladium were both better than 1% in the green. Silver prices jumped the most, adding 2.7% to trade near $18.40/oz.
Dollar and Data
Key to the precious metals' rally this morning is the drop in the U.S. dollar. The greenback tumbled about 0.5% against its peers as markets opened on Tuesday, falling to 97.9 on the DXY index. Due to its inverse relationship with the dollar, gold was the beneficiary of this action. In fact, in terms of foreign exchange, gold prices are higher when measured in all other major currencies, with the exception of being mostly flat in euros and Swiss francs.
Wall St opened about 0.25% in negative territory despite the ISM manufacturing index numbers for October coming in above analysts' expectations. The reading of 51.9 represented modest expansion. Also, according to the ISM, its price index has risen for eight consecutive months. Many are taking this as a sign that stronger inflation may be cropping up. Nonetheless, this positive data didn't particularly weigh down the precious metals.
In monetary policy news, the Bank of Japan (BOJ) decided to stand pat on its current program. The central bank also kept its interest rate target unchanged. The only change made by the BOJ was pushing back its target date for reaching 2% inflation an extra month to April 2018. Market reaction was muted: the bank basically reinforced that economic conditions are on shaky ground, but at the same time didn't provide any extra stimulus or accommodation that markets seem to be addicted to.
Beyond tangible economic factors, the driving force behind the anxiety being felt across the financial markets has been the U.S. presidential election. The contest between Republican candidate Donald Trump and Democratic candidate Hillary Clinton has again pulled closer after FBI Director James Comey apparently has gone public about reopening the investigation into Clinton's use of a private email server while secretary of state. The Bureau hasn't officially reopened the case yet, however.
The fresh controversy for Clinton has nearly evaporated the generous lead she was enjoying in the polls leading up to the email fiasco being reignited. While Trump has suffered through more than his fair share of controversies as well, this "October Surprise" so close to the election has thrown the outcome into doubt. There could even be a post-election battle over recounts (a la 2000) and challenging the results if the race is particularly close.
Gold should continue to absorb safe-haven demand until the election is entirely resolved. Technical analysts point toward resistance levels at $1,292 per ounce and then $1,300 per ounce above that.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.