Gold touched a six-week high and copper advanced for a fourth straight session, boosted by a declining dollar and the outlook for further central-bank stimulus as investors await the final outcome of the US presidential election.
A gauge of the dollar touched a two-year low, with investors pricing in a likely Joe Biden presidency. Hopes for more monetary stimulus also boosted metals, with the Bank of England expanding its bond-buying program and Federal Reserve Chair Jerome Powell set to speak later Thursday.
The prospect of greater clarity on the election outcome may help reduce volatility in commodities after a tumultuous run-up to the vote, analysts said. And while Democrats face long odds for taking the Senate, pointing to a smaller Covid-19 relief bill, pressure is rising on lawmakers to act with the recovery losing steam amid a spike in virus cases. Bullion topped its 50-day moving average, another bullish sign for traders who follow charts.
“Investors are betting that a potential Biden win will pave the way for a bigger fiscal stimulus package than would have been the case if Trump was re-elected, while a Republican-controlled senate will make it unlikely that Trump’s corporate tax cuts will be rolled back,” Fawad Razaqzada, market analyst with ThinkMarkets, said in a note.
Strong performances across most commodities with stocks sharply higher and the dollar lower is “in the realization that the combination of a Biden win and senate majority by the Republicans may remove a great deal of policy uncertainty,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said in a note.
{{/usCountry}}Strong performances across most commodities with stocks sharply higher and the dollar lower is “in the realization that the combination of a Biden win and senate majority by the Republicans may remove a great deal of policy uncertainty,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said in a note.
{{/usCountry}}The tightly contested US election puts pressure on the Fed to deploy even more monetary stimulus to support the economy under a divided government, some analysts said.
“It is possible that the Fed will have to step into the breach instead,” Commerzbank AG’s Carsten Fritsch said in a emailed note. “Fed Chair Powell may give some indication of this at the press conference following today’s FOMC meeting. The continuing ultra-expansionary monetary policy pursued by central banks points to further rising precious metals prices.”
Investors are also weighing the toll that new virus lockdowns could take on demand, as well as mounting supply risks as miners battle to keep operations running smoothly through the pandemic.
Analysis of satellite data carried out by Jefferies Group, which tracks several major copper mines, shows that daily production rates increased by 2% year-on-year in the third quarter, despite visible activity dropping 27%, the company said in an emailed note on Thursday. Keeping production running at high rates with a reduced workforce may not be sustainable, according to Jefferies.
“Production has ramped up despite workforce constraints, signaling an under-appreciated supply squeeze and a path to a higher copper price,” Jefferies analysts Christopher LaFemina and Petar Petrovski wrote. “We expect activity levels to remain subdued as risks of additional Covid-related lockdowns mean the slowdown that began in April should continue.”