Gold moved cautiously upward, helping to keep it fluctuating around $1866. The release of the Fed’s long-term dovish outlook and a slowdown in economic forecasts prompted a weaker dollar to give gold buyers another boost. Not to mention the Fed, the prospect of renewed COVID-19 restrictions, coupled with favorable brexit headlines, has gold once again supported by multiple limitations. The pre-Christmas optimism shifted from optimism to cautious pessimism after comments from the Fed chairman, while the next thing to move gold is expected to be progress on the NEW crown economic stimulus package.
Fundamental Analysis: The Fed’s long-term dovish outlook for the U.S. economy is slowing
Us monetary policy has not changed, let alone quantitative easing, but the Fed has conveyed a long-term dovish outlook, during which it has also expressed support for the US economy until there is substantial progress in employment and inflation. Federal Reserve Chairman Colin Powell indicated that he would continue to buy government bonds until the economy improved significantly and announced that he would keep its benchmark interest rate near zero. The fed’s statement said: “the committee decided to keep the federal funds rate target range in 0% to 4% 1 /, and want to keep the target range at the appropriate level, until the labor market conditions to commission the maximum employment and inflation rose to 2%, and is expected to moderate over a period of time more than 2% of the assessment consistent level. “The Federal Reserve will continue to add at least $80 billion a month to its portfolio of Treasury securities and at least $40 billion a month to its portfolio of agency mortgage-backed securities until the Committee makes substantial further progress toward its maximum employment and price stability goals.”
Powell is playing it safe, expecting the economy to strengthen in the second half of 2021, and the dollar index rebounded from its lowest level since April 2018, but the turn didn’t last long. The Fed now expects the economy to contract by 2.4 per cent by 2020, compared with its previous forecast of a contraction of 3.7 per cent. The economy is expected to grow 4.2 per cent next year, compared with a previous forecast of 4 per cent. The Fed expects the US economy to grow by 3.2 per cent and 2.4 per cent by 2022. Mr Powell added: “We do have the flexibility to provide more accommodation. Bond buying will continue until the job is really done. The problem is getting through the next four to six months, when help is clearly needed. Novel Coronavirus cases, currently proliferating and widespread, appear to have an impact on the economy, meaning some slowdown now and in the first quarter of next year. Things will improve by the middle of next year, when people will start to feel comfortable going out and engaging in a wider range of activities. The economy should be strong in the second half of next year.”
As the Fed releases news, investors will be focused on the pace of the new coronave-stimulus package, which is now edging closer to the long-awaited stimulus. However, Democratic presidential candidate Joe Biden poured cold water on hopes for an immediate $900 billion offer from Lawmakers on Capitol Hill. But divisions between the U.S. state and federal governments, as well as disagreements over corporate debt, have delayed passage of the stimulus package and the situation remains gridlocked. This, of course, will provide continued support for gold buyers.
In addition to the Federal Reserve and the NEW us economic stimulus package, the Brexit impasse has once again brought good news to gold bulls. The COVID-19 news update was equally positive, in this case referring to the resurgence of COVID-19. According to the latest statistics, the cumulative number of confirmed cases of COVID-19 globally has exceeded 74.45 million, with 25 countries in the world now having more than 500,000 confirmed cases. The global COVID-19 epidemic continues to spread. In the US, the epidemic continues at a rapid pace, with a surge in the number of confirmed cases and COVID-19 deaths in a single day. According to Worldometers’ real-time world statistics, as of 7:11 Hong Kong time on December 17, the cumulative confirmed cases of COVID-19 in the US exceeded 17.35 million, reaching 17,352,851, with 207,000 new cases in a single day. The cumulative number of deaths has exceeded 314,000, reaching 314,162, with more than 3,000 deaths in a single day.
There was also a different mood of optimism in Europe. The German Chancellor Angela Merkel announced measures this week to reinstate restrictions. She said the current restrictions, which include the closure of bars, restaurants, art galleries and leisure facilities, were clearly not enough to cope with the second wave of COVID-19 in Germany. She added: “This week we will be introducing new restrictions limiting Christmas celebrations to the smallest family gatherings, there will be no carols, no parties and the festive kiosks that germans love will be closed because of the current ban on outdoor drinking.”
Against that backdrop, Wall Street’s benchmark index closed mixed, while the 10-year Treasury yield held above 0.90 per cent. Looking ahead, the Fed’s and Powell’s statements will give global investors a much-needed break, while just as important will be the U.K. ‘s economic stimulus package and the busy Calendar in Asia. And as Powell said, the biggest economic impact is still on COVID-19 and the development of vaccines.
The one-month downtrend is now around $1,867, keeping gold bulls in check. However, if it continues to break above its 21-day moving average, which is currently trading around $1,856.50, the bar for gold sellers will rise.