On Wednesday (December 16) in the Asian session, the DOLLAR index was little changed, now at around 90.50; Spot gold, which has just broken through $1,855 an ounce and is now approaching $1,860, has been boosted by expectations of economic stimulus in the US. On Wednesday night in Hong Kong, investors will be greeted with what has been dubbed the “terror data” on US retail sales, which is expected to trigger market volatility. Also early Thursday in Hong Kong, the Federal Reserve’s interest-rate decision and fed Chairman Colin Powell’s press conference are likely to spark more market activity.
Gold jumped more than 1 percent on Tuesday on expectations of more novel Coronavirus relief in the United States. Spot gold closed at $1,853.49 an ounce, up $26.29, or 1.44 percent. Gold extended its gains in Asian trading on Wednesday, touching as high as $1, 858.30 an ounce.
The huge death toll from the COVID-19 epidemic in the United States has put pressure on lawmakers to provide relief and boosted optimism about the plan. A source told CNBC that House Speaker Nancy Pelosi invited congressional leaders, including Senate Majority Mitch McConnell, to discuss government funding and the Novel Coronavirus rescue plan.
Ms. Pelosi’s comments came after a bipartisan group of lawmakers released a proposal late Monday for another economic rescue package, splitting an earlier measure into two parts.
A bipartisan group of U.S. lawmakers on Monday released details of their proposed $908 billion stimulus bill to combat the epidemic. The first of two parts of the bill is a $748 billion rescue package that includes nearly $300 billion for small businesses, vaccine distribution assistance and an additional $300 a week in unemployment benefits. The second part of the bill contains only two elements, the $160 billion in state aid sought by Democrats and the accountability provisions that Republicans say should be included in the package.
The fact that gold broke through the $1850.00 / oz barrier on Tuesday and tried to stay above that level supports our continued bullish view, according to an article on Economies.com. Gold’s next target is $1, 875.00 an ounce. Maintaining gold prices above $1,833.00 an ounce is the first condition for gold to continue bullish expectations, Economies.com added.
Jeffrey Sica, founder of Circle, said: “The stimulus package is likely to be approved, which is what the gold market has been waiting for. “Most people have come to terms with the fact that vaccines can stop the next wave but will do little to stop the current one.”
Gold is seen as a hedge against inflation, which could be triggered by unprecedented stimulus measures in 2020. Gold prices have risen more than 22 per cent this year.
Adrian Day, president and CHIEF executive of Adrian Day Asset Management, said he was neutral on gold prices in the near term, but remained bullish.
Charlie Nedoss, senior market strategist at LaSalle Futures Group in New York, said he expects the dollar to weaken further this week, which should support gold prices. “I think we are on track to see stimulus measures next year, which will put pressure on the dollar,” Nedoss said.
Edward Moya, an analyst at Oanda, said gold was hovering around $1,850 an ounce and could expand gains if the U.S. Congress continues to push through a bailout package.
The Fed’s decision is coming
In addition to ongoing fiscal stimulus talks, investors are also focused on the Fed’s policy statement and Chairman Colin Powell’s press conference, which could be catalysts for the gold market.
Thursday 03:00 Hong Kong time; The Federal Open Market Committee releases its interest rate decision; Federal Reserve Chairman Colin Powell will hold a press conference at 03:30 Hong Kong time on Thursday.
Markets expect the Fed to keep interest rates near zero. If the Fed sends a dovish message, gold could rise further.
Td strategists said the market could see new forward guidance language at the December meeting. The December statement is likely to clarify that the QE programme will continue until progress is made on the maximum employment and 2 per cent inflation targets.
Td strategists said: “We also expect officials to announce an extension of the weighted average maturity of Treasury purchases. They are also likely to note the near-term challenges and uncertainties associated with the pandemic, even if the vaccine news improves the medium/long term outlook. By the end of 2023, the median forecast for the fund’s rate will almost certainly not continue to tighten.” That’s all good news for gold, as stimulus measures, lower yields, and a weaker dollar are likely to trigger more allocations to the metal.
Td strategists said: “The Fed will counter the recent steep trend by linking QE to economic outcomes and extending the weighted average maturity of its purchases of Treasuries. We expect a more dovish outcome, which should rekindle speculative interest in gold. “There have been massive outflows from gold exchange traded funds over the past six weeks and that has weighed on the gold market.”
Rhona O’Connell, head of market analysis for Europe, Middle East and Africa at StoneX, wrote on Monday that she expected the tone of the Fed statement to remain the same, but that some adjustments were likely. “The general consensus is that there will be minor tweaks at best, probably around expanding the financial asset purchase programme,” says O’Connell.
At the news conference, Powell is expected to highlight downside risks to the U.S. economy over the winter, said Win Thin, director of the currency strategy at Brown Brothers Harriman. “The outlook has worsened since the November FOMC meeting,” Said Thin. The number of infected people has reached a new high and shows no sign of abating… A full recovery will be delayed until next year because of the possibility of tighter restrictions in the future, “the head of foreign exchange strategy said. “As Federal Reserve Chairman Powell has said countless times, there can be no sustainable economic recovery unless the virus is contained.”
A less dovish Fed and a lack of real progress on stimulus measures will not only hurt stocks, but will also dampen demand for gold, Sevens Report Research said.
Craig Erlam, an analyst at Oanda, said whether gold can rally from there will depend on the Fed’s message on Wednesday that if Congress fails to act, the Fed could step in and take bold action, which would be good news for gold.
The “scary data” is here
U.S. retail sales data for November will be released at 21:30 Hong Kong time on Wednesday. Retail sales are closely watched by investors because they are a direct reflection of consumption and serve as an important guide to the economy.
U.S. retail sales are expected to fall 0.3 percent in November, according to media surveys, after rising 0.3 percent the previous month.