The real reason why gold price plunged this week

The real reason why gold price plunged this week

Oct 31st 2020

Posted by Kitco

What was the real reason why gold tanked this week and what are the expectations come election day Tuesday?

This week, gold dropped well below its key $1,900 an ounce level after being stuck there for weeks.

Analysts pointed to higher U.S. dollar, lower equities and options expiration as the main reasons for the drop. But behind all of that noise were election jitters and more coronavirus fears as some European countries re-introduced lockdown measures.

One major factor to keep in mind is that trading volumes remain very low as most investors are staying on the sidelines until the U.S. election plays itself out. What this means for gold is that low volume mixed in with aggressive flows lead to extreme volatility.

With the U.S. election just days away, here is the breakdown of the the best-case / worst-case scenarios for the precious metal, according to analysts.

A blue wave across the board is likely to trigger the biggest gold rally on hopes of a massive new stimulus that the Democrats have been promising.

The worst-case scenario is looking like a contested election, with results unknown for weeks, and possible civil unrest. This could trigger a short-term selloff as investors rush to cash. But in the long-run, this will benefit gold just like it did back in March.

The most uneventful scenario for gold will be a split Congress, which would lead to a slow grind higher in prices.

Once we get past all this election noise, the outlook for gold remains very positive for 2021, with the precious metal projected to be one of the biggest asset winners. Some forecasts vary from $2,100 to $2,500 by early 2021.