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Deflation Fears and No Stimulus Make Gold a Dull Boy

Written by Luke Burgess
Posted October 19, 2020

Gold and silver prices opened slightly higher this week on the back of a weaker U.S. dollar and what seems like confirmation that there won't be another stimulus package until after the election.

Gold for December delivery was up about $10 to $1,916 an ounce in early morning trading. Meanwhile, silver rose to about $25 per ounce.

Yesterday House Speaker Nancy Pelosi gave the White House an ultimatum: Reach a deal on a new coronavirus stimulus plan or Congress won't be able to pass the relief before the election.

Pelosi said she is “optimistic” an agreement on the package could be reached before the election. However, Senate Republicans can still stall the deal.

Last week Mitch McConnell said the $1.8 trillion stimulus deal is “a much larger amount than I can sell to my members” and that he doesn't think an agreement will be reached before the election.

Trump says he is looking to expand the package to meet Democrats' demands. He even said he would support a spending package even larger than the Democrats have previously proposed.

But if there's one thing we've learned in the past four years about Donald Trump, it's that he says a lot of things he has no intention of actually doing. I mean, how's that wall coming?

I think it's also pretty safe to say Trump is not a man who easily bends to ultimatums.

So despite Pelosi's optimism, there's still a good chance we won't see another stimulus bill until well past the November election. More likely, Pelosi is betting on the deal being delayed and knows that being publicly optimistic puts her in a better position to blame Senate Republicans for stalling the stimulus later on.

For gold, however, the political back-and-forth hardly matters. Heck, whether or not there is even a second stimulus package hardly matters for gold. That's because either way gold prices are still set to rise.

Governments worldwide have already doled out trillions in economic stimulus. A second U.S. stimulus package is just the cherry on top.

The extreme monetary measures already taken by the world's key central banks remain the key bullish factor for gold. For now, though, fears of long-term deflation due to economic damage caused by COVID and a 50-year low in the velocity of money are weighing down gold prices. But that won't last forever.

I expect the price of gold to remain mostly flat through the rest of the year and start a new upward trend around the beginning of 2021. So right now is a great time to buy.

Check out what my colleague Christian DeHaemer is saying about gold now.

Until next time,
Luke Burgess Signature
Luke Burgess

As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.

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