Thursday (January 28) Asian intraday, the dollar index remained firm trend, now near 90.75; Spot gold has fallen back below $1,840 an ounce after falling below $1,835 earlier as caution over the final size and delay of U.S. President Joe Biden’s $1.9 trillion fiscal stimulus plan continued to pressure the metal. On Thursday night in Hong Kong time, investors will receive heavyweight data such as U.S. GDP, which is expected to trigger fresh market volatility.
Gold prices fell on Wednesday, weighed down by concerns about the U.S. economic stimulus bill and a stronger dollar after the Federal Reserve left interest rates unchanged. Spot gold settled at $1,843.83 an ounce, down $6.94, or 0.37 percent. On Thursday, as the dollar continued to rise, gold continued its decline, losing $1,835 an ounce at one point.
As long as gold remains below $1,850.80 an ounce, the bearish view will remain valid for some time to come, according to Economies.com, a leading financial website. With the outlook for gold remaining bearish, the first gold target is $1820.00 / oz. A break below this level could extend gold’s decline to $1800.00 / oz.
President Joe Biden has proposed a $1.9 trillion rescue plan, but the size of the stimulus has drawn opposition from Republicans. Mr. Biden has made the aid plan his top priority since taking office on Wednesday.
Bob Haberkorn, senior market strategist at RJO Futures, said: “The size of the $1.9 trillion (U.S. stimulus package) is quite large and I don’t think President Biden will have the support to pass it. That’s another reason why gold hasn’t tried to move back above $1,900.”
The president’s top economic adviser said Tuesday that the Biden administration may be willing to adjust the threshold for disbursement of the next round of anti-pandemic stimulus checks to ensure the benefits go to families most in need of emergency funds.
“If they reach a deal, there may be a watered down version of it to get it through Congress, so that will also weigh on the gold market,” Saxo Bank analyst Ole Hansen said.
The Fed said Wednesday after a two-day policy meeting that it would keep its benchmark short-term borrowing rate near zero and maintain its asset purchase program, in which the central bank buys at least $120 billion a month, as expected.
“The pace of recovery in economic activity and employment has slowed in recent months, with weakness concentrated in the sectors most affected by the outbreak,” the Fed wrote in its post-meeting statement.
The statement reiterated that the new pandemic “is causing enormous human and economic hardship in the United States and around the world.” Beyond that, the Fed’s policy statement remained largely unchanged.
CIBC noted that the Fed would like to see more details on fiscal stimulus and vaccines before it reconsiders policy. As a result, the Fed left the federal funds rate and the pace of bond purchases unchanged.
James Hatzigiannis, chief market strategist at Ploutus Capital Advisors in New York, said the Fed’s statement was as expected and the focus is now on the epidemic.
Tai Wong, head of metals derivatives trading at BMO Capital Markets, said: “The market is looking for a more accommodative signal from the Fed and it’s not getting it, so gold can’t rally.”
Michael Hewson, chief market analyst at CMC Markets UK, said: “To push gold towards the upper end of the narrow range, the Fed will need to take a fairly dovish tone and that will push the US 10-year yields back below 1 per cent, which will help gold.”
Market analyst Joel Frank noted that gold’s decline was driven by a stronger dollar. The dollar recovered amid a general deterioration in risk appetite.
Frank said the stock market selloff is having a general impact on other asset classes. Bond yields fell and commodity prices such as crude oil and industrial metals fell. In addition, the ECB’s comments on rate cuts also triggered a weaker euro and a stronger dollar, which continued to put pressure on the precious metals market.
US GDP hits
Investors will get the latest clue on the health of the US economy when US GDP data comes out at 21:30 Hong Kong time on Thursday.
Real U.S. gross domestic product is expected to have grown at an annualized rate of 4.2 percent in the fourth quarter, according to a survey by authoritative foreign media, after rising 33.4 percent in the third quarter.
If GDP continues to show an uptick, it could underscore that the economy is moving in the right direction even as the novel coronavirus pandemic continues to bite.
“The bright spot on the data front will be fourth-quarter GDP growth,” said economists at ING. Expectations have come down because of the weak consumer spending data in December, the decline in payrolls, but we can still expect the economy to grow by more than 4%. We are more concerned about the first quarter as the economy lost momentum after containment measures were reintroduced in many areas following the recent Covid-19 outbreak.”
Analysts said the dollar could be hurt if U.S. GDP figures come in below expectations, leading to a rally in gold prices. The dollar index rose 0.4% on Wednesday, putting pressure on dollar-denominated gold.
Brien Lundin, editor of the Gold Newsletter, said Gold was being squeezed by a stronger dollar, while falling 10-year Treasury yields were bullish for Gold.
In addition to the GDP data, investors will also need to keep an eye on other key U.S. data on Thursday, including initial jobless claims and new home sales.