Gold prices steadied in a tight range around the US$1,900 level on Friday, but fading chances of a stimulus agreement before the U.S. presidential election kept bullion on track for a weekly decline.
Spot gold dipped 0.6% to US$1,896.61 per oz. by 12:20 p.m. EDT, down more than 1% for the week. U.S. gold futures shrank 0.2% to US$1,905 per oz., still trading above the US$1,900 threshold.
"With a stimulus bill this year highly uncertain, gold remains beholden to the USD," Tai Wong, head of base and precious metals derivatives trading at BMO, told Reuters news agency.
"While sentiment for gold remains strongly bullish without a strong short-term driver, we seem to be oscillating around US$1,900, unable to substantially break the month-long range of US$1,850-$1,950," Wong added.
Meanwhile, the dollar index fell 0.2% on the day, but remained on track for a weekly gain, making it more expensive for holders of other currencies to buy gold. A stronger-than-expected U.S. retail sales report lifted appetite for riskier assets, but factory production unexpectedly fell in September.
"With so much event risk on the horizon, culminating with the U.S. elections, we have likely seen the lows in gold for the next month or so," Jeffrey Halley, senior market analyst at OANDA, said in a note. "Gold's likely to shift into a US$1,900 to US$1,975 an ounce range as the elections draw near."
Stimulus hopes dwindling
At the moment it appears that Democrats and Republicans are unlikely to agree on a stimulus deal before the Nov. 3 election, even as coronavirus cases continue to rise and the labour market recovery stalls.
U.S. Treasury Secretary Steven Mnuchin told House Speaker Nancy Pelosi Thursday that President Donald Trump would personally lobby to get reluctant senate Republicans behind any deal that they reach.
The president also said he was willing to raise his offer of US$1.8 trillion for a relief deal with Democrats in Congress, but the idea was shot down by Senate Majority Leader Mitch McConnell.
Gold, which has risen nearly 27% so far this year, is widely considered a hedge against inflation and currency debasement amid the unprecedented global levels of stimulus.
However, some are still hopeful that a stimulus package deal could get done. "New offers or withdrawals of negotiations may just be window-dressing ahead of the elections," said Avtar Sandu, a senior manager for commodities at Phillip Futures Pte.
"The concern for precious metals traders, and other financial market players, is the size of the second fiscal stimulus package after the election," Sandu warned.
Earlier in the week, the International Monetary Fund said that more public spending will be needed to complete the economic recovery from the pandemic, though its forecast for the global economy was better than initially expected.
Positive outlook
Despite pulling back from its August record highs, analysts remain bullish on the yellow metal. Economists at ANZ Bank predict that gold is expected to race higher towards US$2,300 early next year as coronavirus cases continue to mount.
"Approval of a U.S. relief package will be the trigger for price upside. Accommodative central bank policies and liquidity injections are broadly supporting the market," the bank said.
Analysts at Haywood Research maintained their positive outlook for bullion this week and raised the precious metal's price forecast for both the short and long term.