In the Asian session on Thursday, the DOLLAR index continued to come under pressure, trading near 90.15. Spot gold held firm, with gold just topping $1,865 an ounce. The Us Federal Reserve’s dovish tone on Wednesday reassured gold bulls. Investors are still keeping a close eye on the latest developments in THE U.S. fiscal stimulus talks, which this week appeared to have made significant progress and could even lead to a deal, which could spur further gains in gold prices.
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. 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”.
Fed policymakers delivered their modest outlook for the long term, while reiterating their commitment to support the economy until they saw “further substantial progress” in employment and inflation.
On interest rate expectations, the FOMC’s December bitmap assumes that the Fed will keep interest rates at current levels until the end of 2023, the same as in September. One member is expected to raise rates in 2022, while five members are expected to raise rates in 2023.
Jerome Powell, chairman of the Federal Reserve, issued a cautious statement, citing disinflationary pressures and expecting the economy to strengthen in the second half of 2021. Mr Powell said he would continue to use the Fed’s tools to support the economy.
In U.S. trading Wednesday, the dollar turned from positive to negative after the Federal Reserve’s dovish outlook was released, while gold was out of a deep V reversal. Spot gold closed Wednesday at $1,864.65 an ounce, up 11.16 dollars, or 0.60 percent, after touching as high as $1,865.69 an ounce and as low as $1,844.69 an ounce.
Gold held firm in Asian trading on Thursday, touching as high as $1,867.44 an ounce.
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.
Gold prices retest support of $1850.00 an ounce on Wednesday, and after briefly breaking that support, rebounded and are now trading above that level, according to an article on Economies.com.
With gold back above the key $1,850 an ounce level, the bullish trend remains valid both within the day and in the short term, Economies.com said. From the 4-hour chart, the EMA 50 index is supporting gold prices. Gold is expected to continue its bullish trend, with the next major target at $1,875.00 an ounce.
Brien Lundin, editor of Gold Newsletter, said the Fed’s statement underscored what the market already knows, which is that they will continue to push for easy monetary policy as long as possible.
Focus on US fiscal stimulus negotiations
After the Fed’s decision, the focus shifted again to the US fiscal stimulus talks. Us negotiators are “close” to reaching agreement on an estimated $900bn in coVID-12 aid, including a new round of direct payments to consumers, according to lawmakers and congressional aides, us media reported on Wednesday. CNBC reported that the plan does not include liability protections for corporate, state and local aid.
“We have made significant progress in finalizing a targeted pandemic rescue package that will be able to pass with majorities in both chambers,” Senate Majority Leader Mitch McConnell said Wednesday. McConnell also said members of Congress will not leave Washington this year until a new coronave-aid package is agreed upon.
“It’s not done yet, but it’s very close,” said Senate Minority Leader Chuck Schumer. Schumer added that Democrats “want to go further” in providing relief and would push for more after Biden takes office.
Art Hogan, chief market strategist at National Securities in New York, said for the market, investors are weighing vaccine and COVID-19 news. The potential upside for stocks now is the possibility that the stimulus negotiations will emerge from the impasse, with a deal likely to be approved this week.
Gold rallied Wednesday after Fed Chairman Colin Powell said at a news conference after Wednesday’s decision that the fact that Congress would act on stimulus was strong and well known.
Gold is seen as a hedge against inflation, which could be triggered by unprecedented stimulus measures in 2020. Gold prices have risen more than 20 per cent this year.
Lindsey Bell, the chief investment strategist at Ally Invest, told clients: “The stimulus package remains a key focus for the market because it is a necessary bridge to mass vaccination. Given expectations of a recent slowdown in economic data, market participants want a deal soon. If there is no agreement, the unrest could intensify.”