The DOLLAR index.DXY fell slightly in Asian trading on Wednesday, trading near 90.90. Spot gold retreated slightly, trading around $1,867 an ounce, with prices briefly breaking through the $1,870 mark in early Asian trading. The bull target is now back above $1,870 an ounce, with the next big target at $1,900 an ounce. Gold prices have continued to rally in recent days amid growing optimism among investors that the U.S. will offer more economic stimulus. In addition, the dollar remains low, giving gold the impetus to rebound. Investors will continue to keep an eye on the latest developments in U.S. stimulus talks during the session, with any positive news likely to push gold prices higher.
Gold rose to a two-week high on Tuesday amid growing expectations of more fiscal stimulus in the United States to combat the economic impact of COVID-19. A weaker dollar also provides further support. Spot gold closed at $1,870.41 an ounce on Tuesday, up to $7.83 0.42 percent, after hitting its highest level since November 23 at $1,875.23 an ounce.
On December 8 local time, U.S. Treasury Secretary Timothy Mnuchin spoke with Speaker of the U.S. House of Representatives Nancy Pelosi on the economic stimulus bill and proposed a $916 billion novel Coronavirus rescue plan. Signs of progress in discussions on the U.S. Novel Coronavirus bailout will boost gold’s appeal as a hedge against inflation.
U.S. Treasury Secretary Steven Mnuchin says he has proposed a new $916 billion relief package to House Speaker Nancy Pelosi. It is the first time since the election that the Trump administration has taken action to break the months-long impasse.
Mnuchin said in a statement: “I met with speaker Pelosi (of the House of Representatives) this afternoon at 5 p.m. and put forward a $916 billion proposal on behalf of the president, which is a larger package than the $980 billion bipartisan proposal.” Mr. Mnuchin said he had discussed the plan with Republican congressional leaders and President Trump.
“This proposal includes funding for state and local governments, as well as strong accountability protections for businesses, schools and colleges,” Mr. Mnuchin wrote in a statement. The two issues have been the two main stumbling blocks in bipartisan negotiations over a $980bn proposal unveiled last week.
The U.S. Congress aims to pass a new coronavirus relief plan by the end of the year. A deal has been held up by thorny issues.
Speaker of the U.S. House of Representatives Nancy Pelosi will join President Trump, Senate Majority Leader mitch McConnell and House Minority Leader McCarthy in reviewing the proposal. McCarthy said he was 100 percent supportive of Treasury Secretary Mnuchin’s economic stimulus plan.
Pelosi and Senate Minority Leader Chuck Schumer said December 8 that progress was being made on the $916 billion aid package signed by McConnell. Bipartisan dialogue is the best hope for a solution.
Optimism about U.S. economic stimulus is helping gold prices
Analysts said hopes of more stimulus had pushed gold higher because of inflation concerns. Gold, seen as a hedge against inflation and currency depreciation, has risen more than 23 per cent this year on the back of near-zero interest rates and the risk of higher inflation from massive global stimulus measures.
“Gold will continue to move higher once we start to get stimulus or a clearer sense of how all this is going to work,” said Daniel Pavilonis, senior market strategist at RJO Futures.
James Steel, chief precious metals analyst at HSBC, said in a note: “Further fiscal spending is in gold’s favour and the market seems to be pricing in the passage of some sort of fiscal stimulus, even if only temporarily.”
Jeff Wright, executive vice president of GoldMining, said the prospect of a nearly $1 trillion STIMULUS package in the United States, which also represents more debt, will force the Federal Reserve to keep interest rates low and help gold prices rise.
Peter Hug, head of trading at Kitco Metals Global, said reaching $2,000 by the end of the year was “not out of the question” if the stimulus package is approved.
Colin Cieszynski, chief market strategist at SIA Wealth Management in Singapore, is also bullish on gold in the short term as he believes more stimulus measures are on the horizon. “U.S. politicians appear to be under some pressure right now to reach a new spending/stimulus deal to avoid a government shutdown, which could boost gold prices in the coming days,” Cieszynski said.
Giovanni Staunovo, an analyst at UBS, said: “The vaccine will not be more widely available to the rest of the population until next year, not now. “The economic challenges remain. We still need fiscal or monetary support.”
Darin Newsom, chairman of Darin Newsom Analysis, said gold had rebounded strongly after testing support levels around $1,765 an ounce and was technically bullish in the short term.
“Gold prices took a nosedive in November,” said Carsten Fritsch, analyst at Commerzbank. But given the continued rise in COVID-19 cases, which has led to tighter blockades (in California, Germany), politicians are under increasing pressure to introduce further stimulus measures.”
ThinkMarkets market analyst Fawad Razaqzada said the drop in U.S. Treasury yields has supported gold prices as investors realize COVID-19 is not going away anytime soon and interest rates will remain low for a long time.
Mocheck Analytics.com founder Michael Moor said he sees potential for gold to rise to $1,890 an ounce.
The fact that gold prices continued to rise above $1870.00 an ounce on Tuesday and are trying to stay above that level supports our continued bullish view, according to an article on Economies.com. With the outlook for gold continuing to be bullish, the next major target for gold is $1,900.00 an ounce, with a breakout above that level likely to extend the rally to $1,928.60.
One caveat, Economies.com added, is that maintaining gold above $1,838.00 an ounce is important for continued bullish sentiment.
The weak dollar also supported gold prices
In addition to expectations of economic stimulus from the United States, the weak dollar also helped gold prices.
The ICE Dollar index.ICE.DXY edged up 0.2 percent to 90.95 on Tuesday, but its long-term trend remained weak, near 2-1/2 year lows. The DOLLAR index was under pressure around 90.90 in Intraday Asian trading on Wednesday.
The dollar index is down nearly 6 per cent so far this year, its weakest annual performance since 2017.
On a technical level, the usd short-term rally was subdued by 91, with further resistance focused on 91.20 and 91.50 if breached. And if the resumption of the downward, the initial support below 90.80, broke below the support of 90.50.
Td Securities analyst Ryan McKay said the dollar was still very weak and Friday’s weaker-than-expected U.S. jobs data had given the market more confidence that policy measures would continue to support the economy.
Charlie Nedoss, senior market strategist at LaSalle Futures Group in New York, expects the dollar to weaken further, which will give gold a further boost.
Joe Manimbo, senior market analyst at Western Union Business Solutions, said: “The expectation is that the stimulus package will eventually be agreed with the vaccine, which is seen as putting the U.S. economic recovery on a faster and more sustainable track. It’s not good for the dollar.”
“The monetary and fiscal stimulus we are seeing will stimulate global reflation and lead to a weaker dollar, which should be positive for risk and emerging market currencies,” said Axel Merk, president and chief investment officer at Merk Investments in Frankfurt. Merk Investments has $1 billion under management.
XM Investment analyst Marios Hadjikyriacos said gold had made a “triumphant return” recently, with prices back above the key $1,850 an ounce level, driven mainly by lower real interest rates and a weak dollar.
James Steel, the chief precious metals analyst at HSBC, pointed to a generally weaker dollar, negative real interest rates, and a “relentless rise in COVID-19 cases” as positives for gold.