Gold futures hit a one-week high on Wednesday on growing prospects for further relief from the US fiscal coronavirus, pending the Federal Reserve’s monetary policy decisions that should come in on the dovish side and could be the source of a higher volatility.
At 10:06 GMT, February Comex gold is trading at $ 1868.20, up $ 12.90 or + 0.70%.
Progress on stimulus promotion
Negotiations on the “again, again” stimulus package produced whip action in the market for about three weeks, proving to be the main source of volatility for gold traders. Current price action suggests that this week’s news that some bipartisanism has emerged is helping to raise inflation expectations, which is a potentially bullish sign.
Our work indicates that if Washington lawmakers actually follow their intentions and strike a deal, gold will break above $ 1879.80 and change the main trend for the first time since November 9.
The size of the rally, however, will be determined by the size of the stimulus package, which could be confusing for bulls in the gold market. Figures up to $ 2.2 trillion and up to $ 908 billion have been around for weeks, making it difficult to determine how much of a rally to expect from gold.
On Monday, a bipartisan group released its $ 908 billion aid legislation, but persistent disagreements over state and local aid, liability protections and direct payments could make it difficult to reach a deal. To compensate for disagreements, lawmakers have divided the bill into two categories.
The first plan calls for spending $ 748 billion on programs that are valued by both Republicans and Democrats, including federal unemployment benefits and additional loans under the salary protection program.
A second $ 160 billion bill would include the most controversial areas of corporate liability protection and financial aid to state and local governments.
Federal Reserve Monetary Announcements
The Federal Reserve will release its statement with monetary policy stance projections on Wednesday afternoon at 19:00 GMT. Monetary stimulus is the source of long-term protection for gold, but today’s announcements are expected to cause volatile movements in the bond market, and as this affects long-term interest rates, it is likely to trigger a similar response. in the gold market. So get ready for a wild ride.
CNBC says that although the Fed’s long-term outlook should be improved thanks to the vaccine, the central bank should look very accommodating by the end of the meeting.
Hopes for fiscal stimulus (short term) are driving prices higher, while hopes for monetary stimulus (long term) are helping to consolidate the support base for the precious metal.
Furthermore, the bond market, and thus the gold market, could have a volatile reaction depending on what the Fed reports on its bond program.