Financial markets were calm in the sub-session on Monday, with the dollar index holding near 90.20, while spot gold held key support at $1,850 / oz and is now steady at around $1,855 / oz. Investors will be watching for the latest news on the U.S. stimulus plan this week. U.S. President Joe Biden has proposed a $1.9 trillion relief bill, and gold prices are expected to rise further if the plan is approved quickly. In addition, the Federal Reserve interest rate decision this week, and the United States, including the release of economic data, including GDP, are expected to provide guidance to the market next week. On Monday, investors will get a speech from European Central Bank President Christine Lagarde that could have an impact on the euro.
Gold posted its first weekly gain in three weeks last week. Spot gold settled at $1,875.46 an ounce last week, up $27.16, or 1.49 percent, for the week, after hitting a high of $1,875.12 last week.
Joe Biden was sworn in as the 46th president of the United States on January 20, vowing to end what he called a “non-civil war” in the bitterly divided country. Biden’s swearing-in has raised hopes for a new economic stimulus package and a smoother rollout of vaccines.
Biden has announced a $1.9 trillion stimulus package. Since gold is often seen as a hedge against inflation and currency depreciation, a big stimulus package would boost demand for the precious metal.
Gold fell below $1,850.80 and hit its first bearish target of $1,838.00, according to Economies.com, a leading financial website, on Friday. But gold rebounded sharply to close the day above $1, 850.80 an ounce.
Economies.com said it will continue to monitor gold’s performance against support at $1,850.80 an ounce and resistance at $1,871.55 an ounce, and wait for a break below that support or resistance to identify its next move target. Once gold breaks below $1,850.80, this will continue the bearish trend, with the first major target at $1,838.00 and further down targets at $1,800.00.
The gold market continues to attract strong bullish sentiment from retail investors and professional analysts, according to Kitco’s weekly gold survey, released on Friday (January 22). Of the 15 professional analysts who responded to the survey last week, nine (60%) expect gold prices to rise this week.
Adrian Day, president and chief executive of Adrian Day Asset Management, said: “Fundamentals are in gold’s favor, particularly the excessively loose monetary policy around the world. In the medium to long term, this will lead to significantly higher gold prices as precious metals are closely linked to global liquidity.”
Chintan Karnani, chief market analyst at Insignia Consultants, said additional fiscal stimulus is expected to be announced soon, while more government spending will generate more debt, leading to a weaker dollar and boosting gold prices.
Jeffrey Sica, founder of Circle Squared Alternative Investments, said the possibility of more stimulus was very positive for gold.
“Gold is seen as an inflation hedge, and it could get a boost from fiscal stimulus,” said Lukman Otunuga, senior research analyst at FXTM.
Darin Newsom, president of Darin Newsom Analysis, said the technical outlook for gold this week will be significant. He added that the precious metals market continued to be dominated by the strengthening US dollar. If the dollar can close higher this month, it could create a bullish technical pattern, which would be negative for gold, he added.
Analysts pointed to Biden’s $1.9 trillion stimulus plan as a catalyst for higher gold prices, though that will depend on the speed and form of stimulus approval. The mammoth bill faces a tough road in the Senate, where some Republicans have voiced opposition to Biden’s proposal. Republican Senator Susan Collins said it was hard to understand why such a large package was needed and wanted to hear the case for a massive economic stimulus.
Peter Hug, global trading director at Kitco Metals, said: “Stimulus needs to get into the economy faster, not delayed. This uncertainty about what will happen is creating some fear, and $1.9 trillion is a pretty big number. Now, people are worried about how quickly things can get done.”
Daniel Pavilonis, a senior commodities broker at RJO Futures in New York, said inflation will be a key trigger for gold’s next rally once the stimulus package is passed.
Lagarde’s speech is coming
European Central Bank President Christine Lagarde will deliver a keynote speech at 16:45 Hong Kong time on Monday. In addition, Ms Lagarde will speak again at 00:15 Hong Kong time on Tuesday.
The European Central Bank last Thursday announced the latest interest rate decision: keep the three interest rates unchanged, in line with market expectations. In addition, the ECB reiterated its very accommodative monetary policy stance and kept the duration and size of its asset purchase program unchanged.
European Central Bank President Christine Lagarde told a news conference that the current vaccination program for the new vaccines is an important milestone on Europe’s path to recovery. However, the current outbreak continues to pose a serious risk to the economy, with renewed infections and blockades disrupting economic activity. With the eurozone economy contracting in the fourth quarter, uncertainty remains high and risks to the near-term outlook to the downside, adequate monetary stimulus is essential.
Ms Lagarde said an ambitious and co-ordinated fiscal stance remained essential, and that fiscal measures should be targeted and temporary. The recovery fund needs to be deployed quickly and the EU’s aid programme must be operational immediately.
Lagarde also said inflation was still very low and the ECB was monitoring its impact on the exchange rate.
Ms Lagarde expects upward pressure on medium-term inflation, which will pick up in the coming months, once the impact of the pandemic fades.
Naeem Aslam, chief market analyst at Avatrade, said: ‘It’s clear from the ECB meeting that the central bank is not that worried about the economy and investors are coming to the conclusion that things are getting better and that has taken some of the momentum away from gold.’
In addition to Lagarde, European Central Bank Governing Council Leon Panetta and the bank’s chief economist, Joanne Rehn, are due to speak on Monday.
On the economic front, the euro is expected to be hit by the release of German January Ifo business climate data at 17:00 Hong Kong time on Monday. A worse-than-expected reading could signal a slowdown in the German economy.