What’s Happening?

The spotlight is on the US election and with two very different programs locked in a very close race, there’s potential for a lot of volatility and opportunity in the markets this week. Gold role as a haven for capital could make trading in the yellow metal particularly active as a crucible for many of the election impacts: offence versus defence, stability versus uncertainty and Fed speculation.  

Technicals:

After spending 2015 in the doghouse, gold has been in an uptrend for much of this year. Through the first half, gold steadily recovered, climbing from near $1,000 per ounce toward $1.375. Through the summer gold levelled off as shown by lower highs in the RSI and the price, with the latter forming a descending triangle above $1,300.

Since the first election debate in late September, a relationship has emerged between gold and politics with the metal price somewhat tracking the momentum of Donald Trump in the polls.

The late September/early October slump in gold coincided with a stumble for the Trump Campaign but since Mid-October when it completed a 38% Fibonacci retracement of its recent advance, gold has been in an upSwing, unwinding deeply oversold conditions which had developed.

$1,300 remains a key technical level where a round number, 23% retracement level and the 50-day average all converge. The Monday correction has held $1,282 Fibonacci support and 50 on the RSI suggesting this pullback is likely a trading correction within an emerging uptrend.

Next downside support appears near $1,250 with upside resistance in place near $1,305 then $1.326 and $1.342.  

Fundamentals

Currently gold has been trading off of its traditional role as a haven for capital in times of uncertainty and volatility. The close campaign has the potential for both in spades. The two sides present very different policy platforms split between the Clinton Democrats more of the same and the Trump Republicans calls for radical change.

It’s easy to forget that only a few weeks and months ago, many were calling for this campaign to be a total Clinton cakewalk and even as late as the day before the vote, markets appear to be counting on a Clinton win.

A Clinton win could reduce political and economic uncertainty and spark outflows from defensive havens like gold. A Trump win or a contested result could increase uncertainty and spark rallies in defensive havens like gold.

How the election impacts Fed speculation may also impact trading in gold. A Clinton win would seal the deal for a December US rate hike, likely sending USD higher and gold lower. A Trump  win, particularly if it sparks volatility in stock and bond markets, could force the Fed to hold off on raising rates (although likely not for long as Trump has accused the FOMC of keeping rates artificially low to help the Democrats), potentially sending USD lower and gold higher.