The prices of gold dropped to its lowest level since September 28 early in the trading session on Wednesday but recovered on renewed political and economic uncertainty in the U.S.
Spot gold prices fell to $1,882.12 as of 0345 GMT but bounced back to $1,892.07 per ounce as of 0831 GMT.
President Donald Trump, who is still being treated for COVID-19, announced his decision to postpone the negotiations on the second round of the coronavirus stimulus package until after the November 3 election. The decision boosted risk aversion and the U.S. dollar, which rose by 0.2% against a basket of rival currencies. It is also likely to shift safe-haven investments from gold to the greenback.
Gold benefits from stimulus measures because it is often used as a hedge against currency debasement and inflation. Also, the injection of more money into the economy weakens the dollar and supports the bullion.
But there are still factors that favor the yellow metal. One is the increase in U.S. trade deficits in August to a 14-year high, which indicates that trade could negatively affect economic growth in the next quarter. Another is the record number of hospitalized coronavirus patients in six U.S. states that prompted new restrictions. Also, Chicago Federal Reserve Bank President Charles Evans predicted that the inflation rate could hit 2% by 2023 and said he wants to push it further to 2.5% to offset several years of below-target price increases.
Meanwhile, the market will be monitoring the U.S. vice presidential debate and the release of the minutes of the September 15-16 policy meeting of the Federal Open Market Committee.
In physical trading, a government source in India reported that the country’s gold imports in September was its lowest in four months and was almost 60% lower compared to the same period of the previous year.
On the technical aspect of trading, Reuters’ technical analyst Wang Tao predicted that spot gold prices might slide back down to $1,847.57 an ounce.
In a related development, the holdings of the largest gold-backed exchange-traded fund SPDR Gold Trust dropped by 0.32% to 1,271.52 tons yesterday.