COMMENTARY-Gold capped by “safe haven” dollar, doubts over U.S. stimulus deal

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By David Brough

Gold prices were limited in October by a “safe haven” dollar as prospects dimmed for a new stimulus package before next month’s U.S. presidential election.

Doubts that agreement could be reached in Congress over a U.S. stimulus deal before the November 3 poll, have driven investors into the safety of the dollar.

“The current stimulus impasse almost certainly means that once the result is behind us the U.S. government of whichever hue and the Fed (central bank) will unleash a massive new stimulus package designed to drag the U.S. out of the current COVID-related economic mire,” wrote Lawrie Williams, gold market commentator for bullion dealer Sharps Pixley.

Investors are also tracking Brexit trade talks between the Britain and the EU, with UK Prime Minister Boris Johnson set to respond to EU demands. Both sides have been locked in talks in search of a trade agreement before the transition period ends on December 31.

Gold prices have risen by roughly a quarter in 2020, as investors and savers flocked to the precious metal due to uncertainty over the global economic impact of COVID-19.

Gold has retreated from a record high above $2,000 per ounce touched in August, and was at $1,910.55 per ounce, up 0.17 percent, on October 16.

For UK-based gold investors, the pound risked downward pressure against the dollar due to the lack of progress in Brexit trade talks between Britain and the EU.

Some investors believe that even if a trade deal is reached, it will be a limited one, which could drag on the pound.

However, if a strong deal emerges, contrary to expectations, sterling could rally against the dollar.

Market watchers are talking of the possibility the Bank of England may act soon to trim interest rates into negative territory for the first time in history.

As gold has zero yield, then it would potentially look like an increasingly attractive asset class relative to cash as savers, in theory at least, may have to pay banks to hold money in a negative interest rate environment.COMMENTARY-Gold capped by “safe haven” dollar, doubts over U.S. stimulus deal

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