In The Asian session on Monday (December 7), the DOLLAR index was under pressure to decline, spot gold remained stable, currently at about $1838 an ounce. Spot gold gained its first weekly gain in four weeks last week as a falling dollar and bets on US fiscal stimulus boosted its appeal as a hedge against inflation. Investors will keep their eyes on bipartisan talks on a stimulus deal on Capitol Hill this week. In addition, the European Central Bank is expected to make new monetary policy decisions this week, and the central bank’s easing measures should be bullish for gold prices. Key economies such as THE U.S. CPI, PPI and The University of Michigan consumer Confidence index will be in the spotlight this week, as will developments on Brexit and the European Union summit.
Gold bulls peg to the $1850 level
Gold was supported last week by a weaker dollar, hopes of stimulus in the US and a surge in COVID-19 cases. If the price breaks above $1,850 an ounce, further gains are possible, analysts said.
Peter Hug, head of trading at Kitco Metals Global, said whether gold could break above $1,850 an ounce this week was key to market attention.
Gold prices hovered around $1,838.10 an ounce and closed above that level on Friday, according to Economies.com, a leading financial website. From the 4-hour chart, the EMA 50 indicator continues to support gold prices. Waiting for the gold price to move higher, the first bullish target is $1850.00 / oz, and once this level is breached, the gold price is expected to rise further to $1870.00 / oz.
Maintaining gold prices above $1,818.00 an ounce is important for continued bullish expectations, Economies.com noted. It is expected that $1820.00 / oz and $1870.00 / oz will provide short-term support and resistance to gold, respectively.
The gold market is likely to rise further in the short term as sentiment among Wall Street analysts and investors has shifted significantly, according to Kitco News’ Golden Weekly survey released Friday.
“We have seen a strong reversal in the gold price after it rebounded from a key support level of $1,767,” said Darin Newsom, president of Darin Newsom Analysis. “From a technical perspective, the short-term trend is for gold to edge higher this week.”
Fourteen professional analysts responded to the survey last week. A total of 10 analysts (71%) expect gold prices to rise this week; Meanwhile, one analyst (7 per cent) expects gold prices to fall; Three analysts (21%) are neutral on gold.
Most analysts said gold’s rebound from a four-month low hit in November had created strong technical bullish momentum for the market.
Mocheck Analytics.com founder Michael Moor said he expects gold prices to rise to $1,890 an ounce, and then the reverse has begun to lose traction.
Not only is the gold market seeing strong technical support, some analysts also point out that gold continues to enjoy strong fundamental support.
Analysts said November’s disappointing jobs report was further evidence that the U.S. government and The Federal Reserve would have to introduce more stimulus to revive the struggling economy.
On Friday, the Bureau of Labor Statistics reported that 245,000 jobs were created last month, and economists had expected employment to rise by about 480,000.
Focus on US stimulus negotiations
Talks on U.S. economic stimulus will be the focus of investors’ attention this week. A bipartisan, $908 billion rescue plan for the U.S. fiscal stimulus made progress Thursday in Congress, with conservative lawmakers supporting it and house and Senate leaders negotiating. In addition, Congress must pass appropriations bills by December 11 or face another government shutdown.
In an appearance before the House Financial Services Committee last week, U.S. Treasury Secretary Steven Mnuchin stressed the need for a new bailout in the current economic climate.
Peter Hug, head of trading at Kitco Metals Global, said: “All eyes are on the Negotiations between Democrats and Republicans to come up with an economic stimulus package by the end of the year. More liquidity in the market is good for both commodities and equities. “If they don’t come out with a stimulus package, we probably won’t see that until February, and that could have a negative impact on the stock market and the gold market as people move into cash.”
Hug said it was “not out of the question” to reach $2,000 by the end of the year if the stimulus package is approved.
U.S. job growth has slowed significantly and will only get worse before it gets better, said Charlie Nedoss, senior market strategist at LaSalle Futures Group in New York.
“We have seen positive employment growth over the past seven months, but each month is getting smaller,” he said. The jobs data added to pressure for a stimulus deal and for the government to stay open. If you put the two together, you have an incentive to do something.” Nedoss also expects the dollar to weaken further, which should give gold a further boost.
Colin Cieszynski, chief market strategist at SIA Wealth Management in Singapore, is also bullish on gold in the short term as he believes more stimulus measures are on the horizon.
“U.S. politicians appear to be under some pressure right now to reach a new spending/stimulus deal to avoid a government shutdown, which could boost gold prices in the coming days,” Cieszynski said.
CNBC host Jim Cramer also said the stock’s next move will depend ona discussion in Washington about the Novel Coronavirus stimulus plan.
The European Central Bank may make a big move
The European Central Bank, which meets this week, is expected to extend two key economic stimulus programmes until the end of next year to support the economy until the COVID-19 vaccine is widely rolled out.
The European Central Bank will announce its interest rate decision at 20:45 Hong Kong time on Thursday. European Central Bank President Christine Lagarde will hold a news conference at 21:30 Hong Kong time on Thursday.
ECB policymakers will add a further 500 billion euros to their 1.35 trillion euro emergency bond-buying program when they meet on December 10 and extend special terms for lending to the real economy for six months, according to economists surveyed by Bloomberg.
Economists also expect the ECB to offer new long-term loans to banks and extend the duration for which banks can obtain additional loans to keep credit flowing to businesses and households.
Ulrike Kastens, an economist at DWS Investments, said the ECB was clearly intent on providing as easy a financial environment as possible to support the recovery.
Minutes of the ECB’s October 28-29 policy meeting previously showed that the central bank had agreed to act in December, would await the outcome of its economic forecasts in December and would not bind itself to specific policies until December 10.
‘Based on observations, headline inflation is now expected to remain negative for longer than was forecast in September,’ the minutes noted. Officials believe the outbreak could have a more lasting impact on demand and supply, reducing potential growth rates and not ruling out a double-dip recession in the eurozone.
‘Monetary policy can’t be as targeted as fiscal measures,’ European Central Bank President Christine Lagarde said last week. ‘Interest rates will stay low for a long time.’
On November 17, Bloomberg news reported that Lagarde said at the bloomberg Innovation Economic Forum 2020 that the latest development of COVID-19 vaccine has not fundamentally changed the MONETARY stimulus program of the European Central Bank. The current second wave of COVID-19 and blockade measures in Europe have caused a serious negative impact on the economy, and the euro zone is on the verge of a double-recession.
Lagarde stressed at the time that the most pressing issue now is to prevent the economic crisis from turning into a financial crisis. She predicted that the situation in the first half of 2021 will remain difficult and the economy will not recover to the pre-epidemic level by the end of the year. She reiterated that stimulus measures would be adjusted at the December meeting and indicated that she would continue to focus on asset purchases and credit programs.
Analysts took ms Lagarde’s comments as a hint that the ECB would step up its stimulus efforts. If the European Central Bank increases its stimulus measures this week, that could push gold prices even higher.
“Central banks around the world have been uniformly doing the same thing: printing all the money they can, and that’s not going to end anytime soon,” said Sean Lusk, co-head of commercial hedging at Walsh Trading.
Lusk said they see room for gold to rise to $1,900, which will be a key resistance level to watch in the near term.
“We need to recover $1,904 to start talking again about a return to the all-time high above $2,000,” he said.