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  • Gold remains firm in the bullish territory on fiscal stimulus sentiment. 
  • DXY moves sideways, supported in the 93 area as uncertainty kicks-in. 

Gold has held onto the support structure between $1,916/20 within the start of the week’s range of $1,918.64 and $1,933.29, so far, as the US dollar firms into a consolidation. 

DXY was unable to hold the support in the 93.30/50 area last week and gave way to bears to print a two-week low of 93.01. 

Subsequently, the price of gold took-up the role of a safe haven, rallying the most in six-weeks while the hopes of a stimulus package in the US pushed the USD lower.

However, what was evident at the start of this week were the trader’s concerns about the economic impact of the record increases in infections in Europe.

The euro has recovered from its worst levels on the day, at 1.1786, however, the single currency remains down some 0.20%. 

Not only can the move be linked to some repricing of European growth expectations after new restrictions being imposed, but also due to some fears that the EU Recovery Fund will be delayed. 

If these are sentiments that gain traction in the market, or if the second COVID-19 wave swells even further, then the euro could well lose its foothold altogether.

Such an outcome would likely play into the hands of both Gold and the US dollar. 

While polling has been suggesting that Biden is increasing his lead over Trump which has raised hopes of a larger stimulus package in 2021, weighing on the spot market greenback, positioning data may otherwise be telling a different story. 

Net USD shorts dropped to their lowest level since June suggestive of a less confident tone in the market and ”fears about the economic impact of another wave of covid-19 have been rising,” according to analysts at Rabobank.

This could give the dollar the upper-hand in the short-term. 

Large-scale fiscal deal to lift precious metals

Meanwhile, analysts at TD securities reiterate that regardless, ”gold bugs need not look too far on the horizon to expect a large-scale fiscal deal. In fact, the long gold trade is likely agnostic to the election outcome.”

”With both the Trump and Biden agendas estimated to cost between $5.0T and $5.6T over the next decade, both plans would provide substantial tailwinds for the long gold trade.

Barring a split government outcome, both administrations are likely to push through a large-scale fiscal deal in no time that would help de-bottleneck the real rate suppression, lifting precious metals in the process.

That being said, we expect that a Blue Wave would lead to global reflation, which would be the most positive outcome for gold bugs.”

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