GOLD - USD - US Deflation Fears May Send Gold Lower - 11/03/2020 (GMT)

STATE OF THE MARKETS
Investors are not convinced that the sharp rebound of the US economy in the last quarter will continue perpetually. Major US indexes saw a rebound after fresh data showed employment improved and the economy grow more than 30% in the last quarter. The benchmark 10Y yield rose slightly, 0.06%, to reflect the optimism but overall markets remain in fear as evident in the elevated levels of volatility.

Crude collapsed further to a new low around $35.00 as with gold to around $1,860 as investors revert to cash. Sellers are seen to dominate the markets as buyers cashed out preparing for the US election results next week. Speculation of a contested result, saw heavy liquidation in equities; though small cap stocks seems to be the primary beneficiaries. US Dollar continue to be bought on dip at the expense of the Euro as ECB unveiled it’s preparation for a massive stimulus to counter resurgence of the corona virus. Long and medium term accounts seem locked to the safe-haven Yen, Dollar and Swiss, while still betting on the NZD and GBP.

OUR PICK – GOLD
Though gold is usually in demand in the time of crisis and as a hedge against inflation, recent fear of deflation might send it lower in the medium term. A Blue sweep in the US election would trigger further equities consolidation, rising demand for treasuries and hence the Greenback. Coupled with deflationary concerns this means lower gold. However, in the long term, with the Democrats planning to spend more than the Republicans, it will ultimately means more deficits and depreciating Dollar. In the mean time, we favor shorting the precious metal.