On Friday (December 18) intraday, the DOLLAR index began to rebound, is approaching the 90 mark; Spot gold retreated a bit, but remained at $1,880 an ounce. Investors will continue to focus on developments in U.S. fiscal stimulus talks during the session, with any positive news likely to push gold higher, with bulls targeting $1,900 an ounce.
Gold prices rose more than 1 percent to a one-month high on Thursday amid expectations that a coronavirus rescue deal is imminent. In addition, the U.S. dollar index fell to its lowest level since the spring of 2018 after the Federal Reserve pledged to inject more cash and keep interest rates low. The fall in the dollar index helped make dollar-denominated gold more attractive to overseas buyers.
Spot gold closed Thursday at $1,885.27 an ounce, up $20.62, or 1.11 percent, after hitting a one-month high of $1,896.14 an ounce. Spot gold slipped on Friday as the dollar rebounded against a basket of currencies, although gold struggled to stay above the $1,880 / oz mark.
The Federal Open Market Committee on Wednesday left its target range for the federal funds rate at zero to 0.25 per cent, in line with market expectations. The Fed says it will keep pumping money into financial markets until the U.S. economy recovers steadily.
In its post-meeting statement, the Fed said it would continue to buy at least $120bn a month in bonds “until substantial progress is made towards the Committee’s maximum employment and price stability objectives”. Federal Reserve Chairman Jerome Powell issued a cautious statement, saying he would continue to use the Central bank’s tools to support the economy.
Jeff Wright, executive vice president of GoldMining, said the Fed’s pledge to keep buying bonds until it hits its employment target does have a long-term impact on gold prices.
Peter Spina, president and CEO of GoldSeek.com, noted that Federal Reserve Chairman Colin Powell has made it clear he will not raise interest rates any time soon and has pledged to boost inflation to support gold’s rise. On the other hand, investors now see gold as a more attractive store of value than the dollar or other fiat currencies.
Citigroup on Thursday said it would remain bearish on the dollar and bullish on the euro/dollar until the end of the year. “We remain bearish on the dollar,” citi said. The Federal Open Market Committee did not break that outlook on Wednesday, and the statement was very much in line with our expectations. The Federal Reserve will continue to provide vigorous stimulus.”
Charlie Nedoss, senior market strategist at LaSalle Futures Group in New York, said he expects the dollar to weaken further this week, which should support gold prices.
Peter Fertig, an economist at Quantitative Commodity Research, said: “The Fed’s decision is a clear indication that it remains uncertain about the recovery. “Given the stance of the Fed and other central banks, with signs of rising inflation ahead and the DOLLAR index down quite a bit, gold looks like an attractive investment.”
“If the Fed continues to tolerate higher inflation, it will further drive down real interest rates and help reduce the opportunity cost of holding gold,” said Ravindra Rao, vice president of commodities at Kotak Securities. “Fundamentally, gold is still pretty strong.”
Investors focus on U.S. fiscal stimulus talks
U.S. lawmakers are trying to hammer out a $900 billion coronavirus aid bill before a Friday deadline. Progress on fiscal stimulus has helped boost demand for gold.
Gold, seen as a hedge against inflation and currency depreciation, is up more than 24% so far this year on the back of unprecedented global stimulus measures.
Congressional leaders said on Thursday they were close to an agreement on $900 billion in aid to the American people.
“A bipartisan, bicameral agreement appears to be on the horizon,” Senate Majority Leader Mitch McConnell said on the Senate floor Thursday. Noting that It was “highly likely” that Congress would work through the weekend, Mr McConnell said lawmakers would likely have to pass a short-term funding measure to buy enough time to approve legislation.
House Speaker Nancy Pelosi said Thursday that Democrats are moving closer to a consensus. “We made some progress this morning,” she told reporters. “We are waiting for a response.”
President Donald Trump tweeted on Thursday that stimulus negotiations appeared to be going well. White House spokesman Ben Williamson said on Thursday trump was optimistic congressional leaders would reach a COVID-19 aid deal within 48 hours.
David Meger, head of metals trading at High Ridge Futures in New York, said the additional stimulus program, along with additional bond and asset purchases by the Fed, has clearly pushed gold higher. The additional stimulus package weighed on the dollar.
Gold prices rebounded above $1,875.00 an ounce on Thursday and briefly approached $1,900.00 an ounce, supporting the bullish scenario for the metal for some time to come, according to Economies.com. With the outlook for gold continuing to be bullish, the next major target for gold is $1,917.00 / oz, with a higher target at $1,928.60 / oz. Maintaining gold prices above $1,875.00 an ounce is the first condition for achieving the bullish target, Economies.com added.