A split congress in November would be bad for gold – Forexlive.com

August 30, 2020

New York (Aug 30)  Although the gold market has struggled to hold on to $2,000 an ounce, one market analyst encourages investors to look past the current volatility and focus on the broader trend currently in place.

Adam Button, chief currency strategist at Forexlive.com, said that he sees the current price action as a healthy consolidation period.

"If you think about a long-term bull market, you don't want to see a nonstop parabolic move," he said.

Button said that U.S. central monetary policy and government fiscal stimulus will continue to be the gold market's critical drivers. He added that he doesn't see the current environment of ultra-low interest rates changing anytime soon.

"In the long term, the main one is runaway fiscal spending, and the second one will be easy monetary policy," he said. "And I think we're setting up for a decade of both of those things."

Although Button is bullish on gold, he expects to see more volatility in the near term, especially surrounding the November U.S. presidential and general elections.

Button said that because the gold market is addicted to fiscal stimulus and loose monetary policy, investors will be sensitive to shifting political winds. He added that the worst-case scenario for gold is if Democratic nominee Joe Biden becomes president and Congress remains split with the House staying with the Democrats and the Senate remaining Republican.

"You would consider selling gold on that and just heading to the sidelines for a little bit because that's that fiscal conservatism will come back," he said. "That limits both the economic growth in the United States, but more so than that, runaway fiscal spending that I think is the main tailwind for gold."

The best scenario for gold would be a Democrat sweep on Capitol Hill. Analysts and economists would expect the government to implement aggressive fiscal policies, Button added.

Although a split government would hinder gold prices in the near-term, Button added that it wouldn't ruin the long-term uptrend. He said that the government will have to continue to spend to support economic growth, no matter who is in office.

"So I think we might kind of hover around these levels on electron uncertainty until then," he said. "But then I think after that, there's a good chance that we run up through $2,000, maybe up to $2,200, a by year-end. That's a level I'd look at," he said.


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