On Wednesday, the DOLLAR index held firm in The Asian session at around 93.55. Spot gold just fell short and briefly approached the $1,880 / oz mark; Gold also extended Tuesday’s losses, with analysts noting that as long as gold stays below $1,900 an ounce, the price will remain under downward pressure in the afternoon. A speech on the economic outlook and monetary policy by Federal Reserve Vice Chairman Larry Clarida is expected to spark markets again this trading day.
The dollar rose on Tuesday, Posting its biggest daily percentage gain in three weeks, as the U.S. stimulus package stalled. The dollar index.DXY closed up 0.53 percent at 93.53 on Tuesday, having hit an intraday high of 93.60.
Hopes of a novel Coronavirus rescue deal before the Nov. 3 election are fading after a $1.8 trillion new economic stimulus plan proposed by the Trump administration drew criticism Saturday from Democrats and Republicans in Congress.
House Speaker Nancy Pelosi said on Saturday that a $1.8tn economic stimulus plan proposed by the Trump administration was “one step forward, two steps back” and would need to be revised to gain support from Congressional Democrats.
Senate Majority Leader Mitch McConnell said Tuesday that the Republican-led U.S. Senate will vote on a scaled-down version of the coronavirus economic rescue bill that Democrats blocked because of their insistence on trillions of dollars in aid.
On Tuesday, House Speaker Nancy Pelosi said the latest package offered by President Trump after canceling negotiations falls far short of what the American people need, but that she still hopes to reach a deal. Us lawmakers said Ms Pelosi had no intention of reaching a compromise with Mr McConnell.
“It’s becoming increasingly clear that there won’t be any stimulus before the election,” said Erik Nelson, currency strategist at Wells Fargo in New York.
Gold prices could fall further
The strong dollar weighed on spot gold Tuesday, falling as much as 1.9 percent. Spot gold closed at $1,890.62 an ounce on Tuesday, down $31.36, or 1.63 percent, after hitting an intraday low of $1,886.21 an ounce.
Spot gold fell more than $10 in short term in Asian trading on Wednesday, touching as low as $1,882.27 an ounce. Gold has since rebounded slightly and is now trading at around $1,886 an ounce.
“The stalling of the next stimulus package in Washington continues to weigh on assets like gold, which are dependent on a weaker dollar for the next wave of support,” said David Meger, head of metals trading at High Ridge Futures in New York.
In addition to the dollar’s strength, a slightly better-than-expected economic report from the International Monetary Fund on Tuesday also weighed on safe-haven buying, hurting gold prices. In its latest report, the IMF said it expected the world economy to contract 4.4 percent this year, compared with a forecast 5.2 percent contraction in June.
“Institutions like the IMF and the Federal Reserve have also pointed out that the economy is recovering more quickly than they initially expected, so we would think that stimulus measures around the world might need to be scaled back,” Meger said.
Edward Moya, senior market analyst at OANDA, said the latest impasse in negotiations over the fiscal stimulus deal “takes away some of the short-term bullish factors we had expected for gold”.
Gold is considered a hedge against inflation and currency depreciation. Gold has risen 25 per cent this year amid unprecedented global stimulus measures during the coVID-19 pandemic.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said gold would need more stimulus spending to reach all-time highs.
Phillip Streible, chief market strategist for Blue Line Futures in Chicago, said the prospect of a SMALLER U.S. Novel Coronavirus stimulus is weighing on gold prices.
Eureka Mining report editor Richard Baker warned that gold volatility would remain high. “Gold will definitely experience volatility as the Congressional stimulus package seeks to strike a balance between the domestic novel Coronavirus and the reality of the presidential election,” Baker said.
Gold prices fell sharply on Tuesday and managed to hit its bearish targets of $1,901.80 and $1,890.00 an ounce, according to an article on Economies.com. Gold is signaling that it will continue to be bearish for some time to come, and is likely to fall to the next major target of $1,860.90 / oz.
As long as gold stays below $1,901.80 and $1,911.00 an ounce, the bearish trend will remain dominant, Economies.com added.
A number of Fed officials will speak this trading day, with vice Chairman Larry Clarida getting the most attention.
On Wednesday at 21:00 Beijing time, Fed Vice Chairman Richard Clarida will speak on the economic outlook and monetary policy.
Clarida will be joined by Richmond Fed President James Barkin, Fed governor James Quarles and Dallas Fed President Richard Kaplan.
Federal Reserve Vice Chairman Larry Clarida said Sept. 23 that the Central bank won’t consider raising interest rates from near zero until it achieves 2% inflation and full employment.
“We don’t expect that we will even start thinking about raising interest rates until we see inflation, which we measure on a year-on-year basis, really equals 2 per cent,” Mr Clarida said in an interview at the time. At the very least, we can actually keep rates there after that.”