On Friday (January 22), the dollar index continued to come under pressure, now trading around 90.10; Spot gold suddenly short – term sharp drop, gold just fell below $1860 / ounce pass. Analysts said gold lost some of its safe-haven support after strong U.S. economic data on Thursday raised investors’ expectations that the U.S. economic recovery is picking up. However, a weaker dollar and the possibility of more U.S. stimulus are expected to limit gold’s losses.
Gold retreated from a two-week high on Thursday as investors took profits after the previous session’s gains, but expectations of further stimulus measures and a weaker dollar capped losses. Spot gold closed Thursday at $1,869.87 an ounce, down $1.88, or 0.1 percent. Asian market on Friday, gold prices again short – term sharp fall, the lowest once touched $1859.75 / ounce.
U.S. economic data on Thursday suggested the economy is slowly gaining some momentum. Expectations that the U.S. economy will recover more quickly have dented gold’s safe-haven bid.
Initial claims for state unemployment benefits fell 26,000 to a seasonally adjusted 900,000 in the week ended January 16, the Labor Department reported on Thursday. Economists polled by Reuters had expected 910,000 applications in the latest week.
Other U.S. data on Thursday showed home construction and permits for future home building surged in December to levels not seen since 2006. Factory activity in the mid-Atlantic region accelerated this month and manufacturers reported a jump in new orders.
“Optimism on economic growth is running high across asset markets, and I think that’s appropriate,” said Anujeet Sareen, Global fixed income portfolio manager at Brandywine Global Investment Management in New York.
Gold prices have climbed recently as the dollar weakens and markets look forward to stimulus from the Biden administration. However, after recent rapid gains, gold is under pressure from a technical correction.
Naeem Aslam, chief market analyst at Avatrade, said gold was due for a pullback following recent price rises.
The European Central Bank on Thursday announced its latest interest rate decision: keep three interest rates unchanged, in line with market expectations. In addition, the ECB reiterated its very accommodative monetary policy stance and kept the duration and size of its asset purchase program unchanged.
European Central Bank President Christine Lagarde told a news conference that the current vaccination program for the new vaccines is an important milestone on Europe’s path to recovery.
Aslam said it was clear from the ECB meeting that the central bank was not as worried about the economy, and investors concluded that the economy was improving, which took some of the momentum out of gold’s rally.
Gold continued to try to break above $1,871.55 an ounce on Thursday, but it faces solid resistance at that level, according to Economies.com. However, as long as gold remains above $1,850.80 an ounce, the bullish view remains valid. Our next target for gold is placed at $1888.30 / oz.
Georgette Boele, senior precious metals strategist at ABN Amro, revised her forecast for gold in a report published Thursday, saying it had peaked.
She noted that the bullish environment for gold had “deteriorated dramatically” over the past month. Boele said she believes the gold market will struggle this year as rising inflation will force the Federal Reserve to tighten monetary policy more quickly than investors expect.
At the same time, improving economic conditions will help push up nominal yields, which in turn will push up real interest rates, another headwind for gold, Boele said.
In its latest forecast, ABN Amro expects gold to average about $1,771 an ounce this year, down from its previous average of $1,951.
Gold’s decline may not last
While gold has retreated from its highs in the short term, the decline is not expected to last, analysts said, with the price likely to rebound in the afternoon on expectations of more U.S. stimulus measures.
Biden was sworn in as president on Wednesday, with markets focused on his proposed $1.9 trillion coronavirus stimulus package, which would need to be approved by a divided Congress.
In the $1.9 trillion stimulus package Biden announced last week, Americans will receive $1,400 in cash support, for a total of $2,000 per person, plus a $600 package passed by Congress in December 2020. Unemployment benefit insurance will be raised to $400 a week from $300 and extended until September.
On January 21st Mr Biden unveiled a “war on war” plan to fight the epidemic. Biden unveiled plans to increase vaccine distribution and testing, prepare for the reopening of schools and businesses, and spread the use of face masks.
Mr. Biden said the U.S. response to the outbreak was a “wartime task,” and that the toughest period was likely to come. The number of Covid-19 deaths in the United States could exceed half a million next month.
Stonex analyst Rona O’Connell said it remained to be seen whether the stimulus package would pass both houses of Congress as quickly as Biden expected, “which could be one of the reasons why gold hasn’t moved much higher.”
Chintan Karnani, chief market analyst at Insignia Consultants, said additional fiscal stimulus is expected to be announced soon, while more government spending will generate more debt, leading to a weaker dollar and boosting gold prices.
Phillip Streible, chief market strategist at Blue Line Futures, said: “There is a lot of optimism that Biden will probably make it a priority by passing more stimulus. There is a real expectation that Biden and Treasury secretary nominee Janet Yellen will roll out more easing in the future. We are cautiously optimistic on gold.”
Jeffrey Sica, founder of Circle Squared Alternative Investments, said the possibility of more stimulus was very positive for gold. Gold is considered a hedge against inflation and currency devaluation.
David Meger, director of metals trading at High Ridge Futures, said: “This is just some simple profit taking after the recent rally was fueled by expectations of further stimulus from the Biden administration. The prospect of further stimulus, coupled with a weaker US dollar, continues to support gold in the broader outlook.”
White House economic adviser Brian Deese said the fragile labor market underscored the urgency for Congress to act quickly on Biden’s $1.9 trillion rescue plan to “contain the virus, stabilize the economy and reduce long-term wounds that will only worsen without bold action.”
On January 19, local time, the US Senate Banking Committee held a hearing on the nomination of Janet Yellen as US Treasury secretary. In her testimony, Yellen urged lawmakers to “take big action” on the next coronavirus mitigation plan. “With interest rates at historic lows, the wisest thing to do is to act aggressively,” Ms Yellen said.