Price gains for gold as U.S. dollar continues to erode

October 21, 2020

New York (Oct 21)  Gold and silver futures prices are moderately up in early U.S. trading Wednesday. Support comes from a weakening U.S. dollar index that hit a six-week low overnight. Weaker U.S. stock indexes in pre-New York trading are also aiding the precious metals bulls. December gold futures were last up $6.90 at $1,922.40 and December Comex silver was last up $0.18 at $25.16 an ounce.

Global stock markets were mixed overnight. U.S. stock indexes are set to open the New York day session a bit weaker. It now appears less likely the U.S. Congress and the Trump administration can come to agreement on a new Covid-19 stimulus package before the U.S. elections in less than two weeks. All sides are still in communication regarding getting some kind of a stimulus package for Americans, however. The U.S. Senate Republicans could stymie any deal that is agreed upon by the House and the Trump administration. Corporate earnings reports are also in focus at present.

Rising Covid-19 cases in the U.S., Europe and South America continue to dampen trader and investor enthusiasm at mid-week. Drug makers are rushing for a successful vaccine, but none appear ready for public consumption any time soon.

In other news, China recently eased its rules on banks trading in the China currency, the yuan, allowing the currency to strengthen. Reports say China is promoting the yuan as the new world reserve currency. The yuan today rose nearly 0.5% to its strongest level against the U.S. dollar since July of 2018. China continues to recover more rapidly from Covid-19 as the U.S. and Europe see rising cases. The Yuan has strengthened more than 7% against the greenback since late May. “In addition to dollar weakness, the yuan is being underpinned by a wide interest-rate premium over the rest of the world. China’s 10-year government bond yields are around 3.2% as the gap versus the yield on U.S. Treasuries hovers around the highest on record,” said an SP Angel email dispatch this morning.

The important outside markets early today see the U.S. dollar index lower again and hitting a six-week low. Nymex crude oil prices are lower and trading around $41.00 a barrel. The yield on the benchmark U.S. 10-year Treasury note is 0.8% today.

U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, the weekly DOE liquid energy stocks report, and the Federal Reserve’s beige book. Several Federal Reserve officials also are slated to speak today. 

Technically, the December gold futures bulls have the overall near-term technical advantage amid recent choppy and sideways trading. Bulls are working on a fledgling price uptrend. Bulls’ next upside price objective is to produce a close in December futures above solid resistance at the October high of $1,939.40. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the September low of $1,851.00. First resistance is seen at the overnight high of $1,926.90 and then at the October high of $1,939.40. First support is seen at the overnight low of $1,911.60 and then at $1,900.00.


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