The gold spot price today continues to slump below $1900, but this low price might not last. The US GDP expanded 33% in the third quarter, but it’s still currently 3.5% below where it was in 2019. CNBC pins this as a victory, even though this is the second-largest three-quarter drop on record. In addition to this, another 751,000 people applied for unemployment last week, the final number before the election. However, the gold spot price has room to increase because of other factors affecting the markets right now. This includes the election, COVID resurgences, and an upcoming Indian holiday known as Diwali.
Main Influences Affecting the Markets Right Now
While Diwali and gold demand are going to drive up the gold price, right now, deflation concerns return. This is a major factor in the precious metals markets. The gold spot price (and silver) witness high selling volumes due to fears about reinstated COVID cases. New restrictions sweep major countries like France and Germany now as they grapple with increased rates of infection.
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On top of that, the strength in the dollar magnifies the impact of the gold and silver mass selling. Also, COVID remains at the forefront of investors’ minds right now. Gold and silver rallied Tuesday ($13+ for gold, $0.35 for silver) but slumped Wednesday and Thursday. This news regarding the dollar reversed on Friday with new inflation reports. In turn, this actually drove the gold spot price up.
This renewed selling pressure also impacted palladium despite Shanghai equity markets rallying. If the gold spot price breaks and remains below $1892, this will further negatively weigh on palladium. News about a vaccine or stimulus may improve prices, but that does not appear likely before the election.
News that can be positive for precious metals is that the US pending home sales missed expectations in September. Actually, they declined a little over 2%. However, pending home sales remain up about 20.5% for the year because of low mortgage rates that inspire demand. This smaller detail is important as it will show where the housing market may move in the coming months. Less confidence in this market might drive people away from this stock and into other investments, however, it is time for Americans to turn their heads to the election.
What Are the Implications of the Election on the Gold Spot Price?
On the Western front, the US election bears significant weight on the gold spot price. To sum up, there are four main possible outcomes, all of which will probably lead to higher gold prices in the long-term. According to Kitco, these outcomes are:
- a Democratic sweep,
- a Trump victory,
- a divided Congress,
- or a contested election.
All these endings can spark a positive environment for gold, one could be “explosive” for the gold spot price. Pepperstone head of research Chris Weston said, “What is the scenario which drives up inflation expectations, brings the Fed in to keep long-term borrowing costs low and makes real rates go down to 2% (sic). If you can work out which is the quickest scenario to get there, that will be the most bullish one for gold. And that, to me, looks like a blue wave.” He also clarified this is because a Democratic win would increase the likelihood of a massive stimulus, which can weaken the dollar.
The three other possibilities might create more of a slow positive churn for the gold spot price. A Republican victory is also positive for gold because of the continued trade wars, budget deficits, and geopolitical uncertainty. On the other hand, a divided Congress or a contested election will probably spark civil unrest. Civil unrest is always a trigger for safe-haven assets, mostly precious metals. So as we look to the election, keep in mind all these factors contribute to a positive growth environment no matter the outcome. This is often the case for the gold price with elections.
This history piles on top of the demand for gold and Diwali celebrations, just around the corner after the election.
Diwali and Gold: What’s the Connection?
What Is Diwali?
Diwali, also known as Deepvali, Dipaveli, or Divali, is the five day Festival of Lights. Diwali comes from the Sanskrit word “deepavali”, which translates to “rows of lighted lamps.” During the holiday, most buildings are decorated with small oil lamps called diyas, and people often enjoy fireworks and sweets during the festivities. Hindus, Sikhs, Jains, and some Buddhists celebrate this holiday, all with slight variations. However, the main idea behind Diwali remains the same across the board: it is a celebration of the victory of light over darkness before they move into winter.
Many people who participate in Diwali enjoy buying gold on the first day of the festival, Dhanteras, as a superstition to invite blessings for a prosperous new year. This tradition stems from the Hindu belief that the goddess of wealth, Lakshmi, is invited into their homes when they buy gold. As a result, she blesses the family to become even wealthier later in the year. This year, Dhanteras falls on November 13, and Diwali begins the following day. Therefore, Diwali and gold are absolutely synonymous with each other.
Sikhs typically celebrate this holiday as a celebration for the release of their sixth guru, Hargobind Singh, from prison in 1619. However, they also celebrated Diwali before this event, especially because their most holy place is the Golden Temple at Amritsar. This temple is literally gilded, and it was laid on Diwali in 1577. Therefore, many Sikhs travel here during the holiday. Finally, Jains also partake in Diwali as a day to honor when their founder, Lord Mahavira, reached Moksha. This is also known as eternal bliss or nirvana.
The Impact of Diwali on Gold Spot Price
Diwali is a holiday that is observed throughout India with about 800 million participants. While there are different interpretations for the holiday, buying gold remains a staple across the board. No matter the price, it seems gold is purchased in a widespread manner, forever linking gold and Diwali.
Since India is the second-largest country in the world, Indian gold demand weighs on the larger markets as well. In fact, seeing as India is the second-largest gold consumer after China, this demand does indeed weigh on international gold markets. It’s also important to note that gold is the second-largest import in India after crude oil.
To put it into perspective, demand is so high during these holidays that Diwali accounts for 1/5 of annual gold purchases in India. Jewelers and gold bullion dealers in India typically report a 20-30% increase in sales leading up to the holiday. And actually, many shoppers save up to make big-ticket purchases at this time, especially because it is still the marriage season. Although they also must deal with the pandemic, gold buying doesn’t have to be a risky tradition. So, a decline in the gold spot price despite the holiday is unlikely.
Some of the most popular picks for gold and Diwali include top gold products from Swiss refineries. The PAMP Suisse Lady Fortuna gold bars, available in fractional and 1 troy oz sizes, are among the most popular picks.
This could be because Lady Fortuna is similar to the Hindu Goddess of Wealth. However, gold bars in general tend to be the most collected. Some bigger ticket items this year might be Perth Mint Gold Bars and Valcambi Suisse Gold Bars.
Indian Marriage Season and Gold
Gold is also a major purchase in India for reasons that extend beyond the holiday. As a matter of fact, gold is worn for all major events and holidays as dictated by the ancient Hindu lawgiver Manu, believed to be the first human. An additional Hindu belief that strengthens their high regard for gold is that Brahma, the Hindu creator god of all life, was born from a golden egg. Therefore, gold is probably the holiest metal in Hinduism, and it further cements the use of gold in the marriage season from August through October.
Old Indian laws usually favored grooms over brides. In the past, only men owned land, buildings, and other forms of property, but women often received jewelry. Therefore, it became a common practice that young Indian girls invest in gold so she always has that store of wealth to help secure her financially. The laws are less imbalanced today than they once were, but the tradition remains.
Vithika Agarwal, a co-founder of Bangalore-based Divya Vithika Wedding Planners, once told CNN, “It doesn’t matter how rich or poor you are—you will still own gold according to your status. And because this is a day when you’re showing off your prosperity, wealth, and material goods, the amount of gold you’re wearing really matters.”
Gold is a common household item among Indians, which is why this holiday and country have such a major impact on the gold spot price. So although the gold price is looking bearish at this time, this lower price might not last very long.