Perfect storm results in spectacular rally in gold and silver

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It was more than a trio of events that sparked big gains today in gold and silver. First and foremost is the global pandemic which has caused global economies to contract. This has led central banks to revise their monetary policies to be more accommodating as they attempt to reduce the contraction so that economies can begin to stabilize and eventually begin to rebuild.Second, is also a direct result of the pandemic; massive fiscal stimulus spending. The United States has allocated $ 3 trillion to fund the Cares Act to help individuals and businesses severely affected by the pandemic.

Which brings us to the third event, the recent presidential election, and how the outcome could affect the size and scope of any upcoming fiscal stimulus bill. While they still total the votes and haven’t officially announced a winner, it seems highly likely that the next President of the United States will be Joe Biden. The need for more fiscal stimulus hinges on the continued economic contraction.

While President-elect Biden is still challenged by a Republican-majority Senate, it seems plausible that his fiscal stimulus package could be much broader than if incumbent President Trump had won a second term.

In a note, Fawad Razaqzada, analyst at ThinkMarkets, said Gold “has found decent support after the likely outcome of the US presidential election – that is, a Biden victory and a divided legislature – raised speculation that conditions in the world’s largest economy will remain favorable. for all kinds of asset prices, including gold. He also wrote that “Investors are betting that a potential victory at Biden will pave the way for a bigger fiscal stimulus package than would have been the case if Trump were re-elected, while a Republican-controlled Senate will make it unlikely. Trump’s corporate tax. the cuts will be canceled. ”

The fourth event that could create uncertainty or at least wreak havoc is if President Trump loses the election and challenges the results. America has spent the last 200 years and prospered because our Founding Fathers created a system that inherently has checks and balances by a three branch government. But one of the cornerstones of our longevity as a country is that there has always been a peaceful transfer of power from one president to another. It is the cornerstone of our democracy. If President Trump chooses to challenge the election results, nothing good could come of this scenario except increased uncertainty.

Finally, the weakness of the dollar has contributed to the current dynamic recovery in gold and silver. At 4:22 p.m. EST, the most active gold futures contract for December 2020 is currently pegged at $ 1,950.60, a net increase of $ 54.40 on the day. Although gold had a respectable gain of 2.85%, it was silver that had the most stellar performance at 6.66%. The December silver futures contract is currently pegged at $ 25.47, after factoring in the current gain of $ 1.58.

However, the weak dollar only accounted for about a third of today’s gains. This can be illustrated when we take a look at the KGX (Kitco Gold Index). The index has spot gold currently pegged at $ 1950.50, which is the result of the current gain of $ 47.90. The vast majority of those gains were a direct result of traders bidding the precious yellow metal higher which stood at $ 32.10 with the weak dollar accounting for the remaining $ 15.80.

The term “perfect storm” is commonly referred to as when several events collectively create a synergistic effect where the sum of the parts is greater than the single parts. Although I think this term is commonly used, in the case of recent events it is the best description of what we are seeing.

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Wishing you, as always, good trading and good health

Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept responsibility for any loss and / or damage resulting from the use of this publication.

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