Money managers across the globe believe that it will take more than just an upheaval in the U.S elections to start a rally in gold prices.
Stephen Land, who hails from Franklin Templeton Investments, was quick to note that all concerns that the Fed will continue raising the interest rates might overshadow any short-term boost to demand come Tuesday’s midterm election results. The relations between US-China, and the dollar are also likely to emerge as catalysts during this period, mentioned the experts.
This current rally in gold, which posted the first monthly gain of 2 per cent, in October, after 6 months, fizzled down by 0.5 percent last week as a rebound in the market for global equities, coupled with a resilient dollar undercut a major portion of the demand for the metal.
These elections won’t come across as the key drivers or catalysts for the gold market, mentioned Land, who is a portfolio manager at the California based Franklin Gold and Precious Metals Fund. Stephen Land said this in a telephone interview on the 2nd of November, where he further mentioned that, “It’s the outcome of the potential trade war with China, the overall health of the Chinese economy and the Fed actions and how that relates to the U.S. and the strength of the dollar.”
Higher rates from the stock market often diminish the appeal that gold has to offer, as it doesn’t pay interest. On the other hand, a stronger dollar also curbs the demand for the yellow metal, as it emerges as an alternative asset. Both these forces have played an imperative part in pulling down gold futures by nearly 6 percent during this year.
Gold futures, however, enjoyed the slump in global equities this October, as they rose by 1.6 percent. Traders and Analysts from a weekly Bloomberg survey were split on what could be the outlook for gold prices this week.
Goldman Sachs Group Inc. cumulatively believes that there would be a divided Congress after the elections, with the Republicans keeping a majority in the senate and the Democrats taking over the House of Representatives. A strategist from Pictet Wealth Management, Luc Layet, believes that such a gridlock scenario could mean that the status quo continues, and gold prices might remain in a lull because of it. You can keep an eye on gold rates during the elections, to see how the metal is reacting.
Luyet mentioned this in an email, where he wrote, “Overall, in our base scenario, U.S. growth should remain firm and rates should continue to move up, albeit gradually, weighing on gold.”
This skepticism within the gold market comes amid major signs of nervousness within other financial markets.
The U.S. economy is still expected to maintain a strong jobs market, even after the elections, according to Axel Merk, the manager of VanEck Merk Gold Trust.