Spot gold eased slightly but stayed above the $1,810 mark, surging nearly $40 a Troy ounce yesterday on expectations of more U.S. stimulus. On Wednesday night in Hong Kong, investors will be greeted by the so-called “mini-non-farm” U.S. ADP employment data and the reappearance of Federal Reserve Chairman Colin Powell, both of which are expected to spark markets again.
Gold rallied more than 2 per cent from a five-month low hit the previous session on Tuesday as bets on US economic stimulus increased the metal’s appeal as a hedge against inflation. Spot gold closed at $1,814.72 an ounce, up $38.22, or 2.15 percent, after hitting an intraday high of $1,817.35.
A bipartisan panel of U.S. senators is expected to unveil a $908 billion economic stimulus package in an effort to break a months-long stalemate, according to people familiar with the matter. It aims to address the expiration of key economic assistance programs, including extending unemployment insurance. According to a draft framework, the roughly $908bn proposal includes $288bn in small business loans under the Wage protection programme, $160bn in state and local government aid and funds to increase unemployment benefits.
The dollar’s tumble on Tuesday also helped gold prices. The dollar index closed down 0.91% at 91.20 on Tuesday. The DOLLAR index.DXY was under pressure around 91.15 in Asian trading on Wednesday.
“We are seeing a return to the $1,800 / oz level and a lot of that has to do with the weaker dollar trade,” said Edward Moya, senior market analyst at OANDA. “The unwinding of the gold trade is over and we are likely to see more action from congress to support the economy.”
Moya said the Fed will remain fairly accommodative. Gold, seen as a hedge against inflation and currency depreciation, is up more than 19 percent this year, helped by unprecedented stimulus measures to help economies hit by the coronavirus.
Daniel Ghali, commodity strategist at TD Securities, said: “Gold has now bottomed out and we expect it to top $2,000 next year.” Mr Ghali added that “gold is now in a virtually new state” and that vaccines could be a catalyst for higher inflation expectations as the economy recovers, which would support gold in the longer term, especially if real interest rates are low.
Fawad Razaqzada, market analyst at ThinkMarkets, said the dollar index remained at recent lows as the euro rose, helping to support gold, although a slight rebound in Treasury yields was not expected to be much of a drag on the precious metal.
“The weaker dollar and conflicting comments from Federal Reserve Chairman Colin Powell and Treasury Secretary Steven Mnuchin seem to be driving gold higher,” said Lukman Otunuga, senior research analyst at FXTM. Despite growing optimism about vaccine development, concerns about a surge in novel Coronavirus cases also drove the price higher.”
Rhona O’Connell, head of market analysis at financial services firm StoneX Group, said gold was now back above its 200-day moving average, which was psychologically and technically important and could support further gains, while the short-term moving average also provided another source of support for gold.
“According to our model, gold should be around $1,850 rather than below $1,800,” said Giovanni Staunovo, commodities analyst at UBS.
Gold hit its first waiting target of $1,794.84 an ounce in intraday trading on Monday and tried to break above that level, according to Economies.com. Gold then hit a second waiting target of $1,805.00 an ounce.
Gold breached $1,805.00 an ounce, according to Economies.com, opening the way for further gains in the period ahead. As long as this level remains above, the outlook for gold remains bullish, with the next target in the $1830.00 / oz area.
Jeff Wright, executive vice president of GoldMining, said the U.S. ISM manufacturing index fell to 57.5 in November from a previous month’s high of 59.3. Negative data provided some support for gold and a possible U.S. Senate concession on a $980 billion rescue package also helped.
“Small farm” with Powell speech hit today
U.S. adPS are expected to have added 430,000 jobs in November, compared with 365,000 previously, according to a media survey.
Analysts said the dollar could take another hit if U.S. ADP jobs data underperforms expectations, pushing gold prices higher.
On Friday, the U.S. nonfarm payrolls report for November is expected to show a gain of 486,000, compared with a gain of 638,000.
Wells Fargo expects the U.S. economy to add 425,000 jobs in November. Wells Fargo said the coming months were critical for a job market recovery. With a new coronavirus vaccine on the horizon, economic life may begin to return to normal next summer.
On Tuesday, Federal Reserve Chairman Colin Powell and U.S. Treasury Secretary Steven Mnuchin both supported more fiscal stimulus to help the economy through difficult times.
Powell emphasized the importance of the loan program implemented during the Novel Coronavirus pandemic. In testimony to senators Tuesday, he said the loan programs played an ‘indispensable role’ in preventing the economic impact from worsening.
Powell did not say how the Fed might respond to the risk of losing momentum when it meets on December 15-16, but he reiterated that it would use all its tools to help the recovery.
‘Maybe we need more on the fiscal front,’ Mr. Powell said Tuesday. ‘The Fed will continue to provide very strong support.’ “The increase in COVID-19 cases, both in the United States and abroad, is worrisome and could prove challenging in the coming months,” Powell said. A full recovery is unlikely until people are confident that it is safe to resume broad-based economic activity.”
In addition to Powell, a number of other top Fed officials spoke Wednesday, including New York Fed President William Williams, Fed governor James Quarles and Philadelphia Fed President Philip Hack.