Daily Brief Aug 18 – Everything You Need to Know About Gold Today
Arslan Butt • 3 min read
The US Treasury yields on a 10-year note initially plunged by 5%, before recovering from a deficit of 3.8%. The US Dollar Index, which measures the greenback against a basket of six currencies, was down to the 92.85 level. Some news reports suggested that top investor Warren Buffet had moved his investment from bank stocks to gold mining stocks on Monday. This news drew the additional interest of investors, and gold started to rise. A public filing of Warren Buffett Berkshire Hathaway Inc. revealed that the conglomerate had taken a new stake in the world’s second-largest gold mining company last quarter.
On the next US stimulus package front, Treasury Secretary Steven Mnuchin said that he and President Donald Trump were ready to disburse funds, but blamed the holdup on the Democrats. According to Mnuchin, the unwillingness of the Democrats to reach an agreement with the Republicans has delayed the next stimulus package.
The Democrats argue that they would decrease their proposal of a $ 3 trillion- stimulus package by $ 1 trillion, if the Republicans were prepared to add $ 1 trillion to their proposal. This has caused a deadlock in the agreement, as Republicans argue that the proposed amount is enormous. This difference of opinions has been weighing on the market sentiment and lending strength to safe-havens like gold.
Furthermore, the House of Democrats has prepared to return on Saturday, to take a vote on a new bill to assist the US Postal Service, which includes $ 25 Billion in new funding. At least half of Congress will return from the August recess early, in order to vote later this week.
The recent changes to the US Postal Services require legislation that could impact the people’s ability to vote by mail during the November presidential election, amid the coronavirus pandemic. Both chambers of Congress left Washington, set to return in mid-September, but Nancy Pelosi announced on Sunday that the House would return later this week, to take a vote on legislation that would prohibit the Postal Service from cutting its service. It is expected that when both chambers meet later this week, they will also talk about the next US Stimulus package.
Meanwhile, on the US-China front, the Hong Kong Secretary of Commerce and Economic Development said on Monday, that US-China tensions were not good for Hong Kong. He also argued that both sides should recognize that the coronavirus pandemic was the common enemy of the world.
He added that the world was already facing an economic disaster in the name of COVID-19, and in times like these, a further distraction, like the escalated US-China tensions and disrupted trade, was the last thing anyone needed.
He stressed the need to understand the correlation between containing the virus and economic performance. He cited China as an example, as its economy was the quickest to bounce back, after having been the first nation hit by the pandemic.
Apart from the trade dispute, the US and China have had a series of other flashpoints, including Hong Kong, 5G technology and the pandemic. Any further issues could worsen the relationship and weigh on market sentiment.
On a positive note, the delay in the trade deal review will allow China to step up purchases before the talks. Another issue that could complicate the talks is scheduling, as the top Chinese negotiator, Liu He, may have to attend a secret high-level leadership meeting. China probably wants to bring up the matter of recent presidential executive orders against Chinese tech firms; this would be outside the context of the USTR.
On the data front, the Empire State Manufacturing Index for August declined to 3.7 against the expected 14.6, weighing on the US dollar. The Mortgage Delinquencies came in at 8.22%, compared to the previous 4.36%. However, the NAHB Housing Market Index rose to 78, compared to the expected 74, lending support to the US dollar. The mixed US data failed to cause any meaningful movement in the precious metal on Monday, and gold continued to follow the market trend.
Pivot point: 1,979.53
The prices for the precious metal soared sharply, to trade at the 1,991 level, on the back of a weaker dollar, increased numbers of COVID-19 cases in the US and odds of an expansionary monetary policy by the Fed. The bullish sentiment still seems dominant, and it may lead to gold prices going even higher, until the 2,018 level. On the lower side, gold may find support at trading levels around 1,965. A slight bearish correction could be seen before gold comes in at levels around 1,985 or even 1,981. Let’s keep an eye on the 1,996 level, as above this; we could see more buying in gold. Good luck!