Spot gold prices surged more than $45 this week as President Donald trump’s tweets heightened tensions between the United States and Iran, which was the main driver of this week’s rally, and the federal reserve and congress joined forces to rescue the market, which further fueled the rally. Investors are bracing for the fed’s decision on interest rates next week and key data, including first-quarter U.S. GDP, are expected to spark volatility next week, with safe-haven buying likely to support gold if U.S. economic data continues to deteriorate. In terms of global epidemic, the total number of confirmed covid-19 cases worldwide has exceeded 2.92 million, and the total number of deaths has exceeded 200,000. In the United States, more than 960,000 cases have been confirmed and more than 54,000 deaths have been recorded.
Spot gold closed the week up 2.7 percent at $1,726.97 an ounce, after hitting its highest level in more than a week at $1,738.60 on Thursday.
Donald trump’s tweets raise tensions in the Middle East
Gold fell to a near two-week low of $1,659.68 an ounce on Tuesday as widespread selling sparked a rush for cash and prompted investors to sell precious metals to cover losses. However, U.S. President Donald trump’s tweets on Wednesday prompted gold bulls to call a counterattack.
Trump tweeted on Wednesday that he had instructed the U.S. navy to shoot down and destroy all Iranian gunboats if they harassed our ships at sea. That has reignited tensions in the Middle East, creating a safe-haven bid for gold.
Heightened geopolitical tensions often prompt investors to buy gold as a safe haven.
Speaking at a news conference on Wednesday, deputy secretary of defense David norquist said trump was warning Iran that American ships had the right to defend themselves.
The navy’s April 15 statement said that while six American warships were training in international waters last week, 11 Iranian ships “passed the bow and stern of the American ship at extremely close range and at extremely high speed.” At one point, the Iranian ship came within 10 yards of the bow of the coast guard cutter maui.
Relations between the United States and Iran have been strained since January following the assassination of Iranian general omar suleiman at the behest of U.S. President Donald trump.
Phil Flynn, senior market analyst at Price Futures Group, said: “the reason for the recent surge in gold is that trump tweeted a message about Iran. Apparently, in recent days, Iran has been playing a cat-and-mouse game with American ships. Trump basically gave the order to shoot at random.”
Charlie Nedoss, senior market strategist at LaSalle Futures Group, said trump’s tweet boosted gold prices. He said it was difficult to gauge the likelihood that Mr. Trump’s tweets would spark a military confrontation. Yet the gold market has taken note.
Another move by the federal reserve
The federal reserve on Thursday said it had stepped up support for credit flows during the COVID 19 epidemic. The federal reserve announced a temporary increase in the availability of intraday credit to support credit on a secured and unsecured basis.
The fed will “suspend unsecured intraday credit line limits (net debit limits) and waive overdraft fees for institutions that qualify for major credit programs”. The revised rules will remain in place until September 30, unless they are extended. “These actions will not significantly increase the credit risk faced by the federal reserve’s Banks,” the fed said in a statement.
In addition, the fed is seeking to expand as quickly as possible the pool of borrowers eligible for its pay guarantee liquidity facility (PPPLF).
Congress passed a $484 billion aid bill
Members of the U.S. house of representatives on Thursday voted to pass a $484 billion novel coronavirus relief bill, including $310 billion for a payroll protection plan (PPP). That brings the total approved for the crisis to an unprecedented nearly $3 trillion.
The PPP was proposed in the $349 billion $2 trillion fiscal stimulus package passed on March 26th. The U.S. government’s $349 billion small-business assistance loan program has run out of money, the small business administration said Tuesday, less than two weeks after it was launched on April 3.
The $484 billion aid bill is the fourth to address the coronavirus crisis. It provides funds to small businesses and hospitals that are struggling to cope with financial losses caused by novel coronavirus. The covid-19 epidemic has killed more than 50,000 people in the United States, and restrictions to combat it have dealt a severe blow to the U.S. economy.
The house of representatives passed the bill by a vote of 388 to 5. Members of the house of representatives are meeting for the first time in weeks because of the coronavirus pandemic. Lawmakers, many of them wearing face masks, passed the bill during a lengthy vote. The voting process allowed them to keep public health recommendations at arm’s length.
President Donald trump signed the bill into law on Friday. At a signing ceremony at the White House, Mr Trump said the bill was good for small businesses and good for workers.
At the end of march, Mr Trump signed a fiscal spending bill totalling about $2.2tn to bail out us families and businesses affected by the outbreak.
Gold is a safe investment in times of political and financial uncertainty, and it tends to benefit from widespread central bank stimulus because it is widely seen as a hedge against inflation and currency depreciation.
Investors next week will see U.S. first-quarter gross domestic product data and the federal reserve’s decision on interest rates, both scheduled for Wednesday. Fed chairman colin Powell will hold a news conference after the rate decision.
The first-quarter GDP figures may be a preview of what happened in the second quarter, when all the shutdowns actually took effect.
Although the virus-related blockade didn’t really begin until the last two weeks of the first quarter, the impact appears to be large enough to translate into a 3.5% annualized drop in first-quarter GDP, said Andrew Hunter, U.S. economist at capital economics. It would be the first contraction in output in six years and Hunter added that the second quarter would be worse.
The fed will have an opportunity to comment on the first-quarter GDP data, which will be the focus of market analysts at Powell’s news conference on Wednesday.
“I don’t think the fed is going to keep cutting interest rates,” said Ryan McKay, commodities strategist at td securities. They’ve cut interest rates as much as they can. Their comments on the growth outlook and how long it might take for the economy to recover are certainly important.”
In addition to U.S. first-quarter GDP and the federal reserve’s decision on interest rates on Wednesday, there are a few other sets of data to watch next week. The conference board’s consumer confidence index and the Richmond federal reserve’s manufacturing index are scheduled for release on Tuesday. Other data include the U.S. PCE price index on Thursday, U.S. jobless claims and the U.S. ISM manufacturing PMI on Friday.
In addition, the European central bank will make an interest rate decision next Thursday, and the meeting is not expected to bring new policy. However, the ECB is likely to reiterate its readiness to upgrade and extend its bond-buying program and carry out other needed actions.
The outlook for gold is bullish next week
Kitco’s weekly golden week survey on Friday showed Wall Street and main street remain optimistic about gold next week, with traders saying they expect massive fiscal stimulus and monetary easing to continue to support the metal.
Twelve of the 15 Wall Street professionals, or 80%, said they were optimistic about the week ahead. One professional (7%) expects gold prices to fall, while two (13%) are bullish.
Meanwhile, an online poll on Main Street showed 1,031 people voting. A total of 729 ordinary investors, or 71 per cent, expected gold to rise. Another 192 (19%) thought it would go lower and 110 (11%) saw it flat.
“Gold looks set for another strong week,” said Phil Flynn, senior market analyst at Price Futures Group.
Kevin Grady, President of Phoenix Futures and Options, also said he was bullish on gold. Gold tends to resist any attempt to sell, he notes, and the massive global money printing will eventually push gold above $2,000.
David Meger, head of metals trading at High Ridge Futures, said gold was supported by the continuation of central bank stimulus measures around the world.
Edward Moya, senior market analyst at brokerage firm OANDA, said in a note: “the unemployment rate appears to be on the verge of hitting the 20 percent level, which alone is enough to keep the fed and the trump administration pumping stimulus into the economy. Gold continued its climb to $1,800 an ounce. The stimulus is not going to go away any time soon, which should mean gold hitting a record high [in dollar terms] by the summer.”
“Gold may be a safer bet as weaker equity markets, negative real interest rates and continued fiscal and monetary stimulus should once again boost gold,” analysts at FXTM said in a note. We expect gold to break above the 2011 high of $1,925 in the coming months.”
Ronord-peter Stoeferle, managing partner at Incrementum AG and author of the In Gold We Trust report, said the Gold market was about to enter a new phase as central Banks and governments struggle to combat the global recession. Mr Stoeferle says there is still room for gold to rise.
Peter Schiff, chief executive of Euro Pacific Capital, a prominent gold bull, believes gold’s rally has only just begun.
“It’s the perfect storm for gold,” said Michael Matousek, chief trader at US Global Investors. Because of all this stimulus that’s being put in place, a steady stream of buyers is buying gold.”
Central Banks and governments are flooding financial markets with liquidity, which will push up inflationary pressures and gold prices, said Chantelle Schieven, head of research at Murenbeeld & Co. The research firm updated its forecast for this year, saying gold could breach $1,800 an ounce by the fourth quarter. Schieven said in the long term, gold could top $2,000 an ounce by the end of next year.
“Technically, gold bulls have an overall short-term technical advantage in the rising trend of daily, weekly, and monthly prices,” Jim Wyckoff, senior analyst at Kitco Metals, said in a report.