Gold futures surged to a new contract high last week as U.S. Treasury yields approached record low levels and the U.S. Dollar touched a new multi-year low, making the dollar-denominated asset more attractive to foreign buyers. These two factors – interest rates and the dollar – should continue to exert the most influence on the precious metal this week.
Last week, December Comex gold settled at $2028.00, up $34.00 or +1.71%.
The rally has been nice for the short-term bulls, those who bought gold as recently as April. They are getting a huge return on their investment. The rally has also helped shore up the finances of the long-term bulls, you know, those who bought nine years ago and are up about $100 on that long-term investment.
We’re not here to sugarcoat the rally. We know that it is being primarily driven by the outlook for additional fiscal stimulus from the government and monetary stimulus from the Federal Reserve. However, we’re not expecting a straight up move over the short-run and we see risks on the horizon for short-term traders because we believe the government is getting close to ending its “free money for all” program.
If you haven’t noticed, this latest round of stimulus talk in Congress has been a long, drawn out event with Democrats and Republicans not seeing eye-to-eye on a number of matters. In fact, it took an executive order from President Trump to break the deadlock. During the first few rounds of stimulus negotiations, both sides seemed to reach an agreement quickly, this time, however, not so fast.
So if your gold forecast calls for continual government support then you may want to rethink the numbers because I think the days of unlimited government support during the pandemic are numbered.
Longer-term, the market is likely to remain underpinned by the generosity of the Federal Reserve and other central banks. I think these investors will stick around until the very end. The way I see, rates in Australia, New Zealand and possibly the United States may have to go to negative in order to generate the final push in gold prices.
Furthermore, longer-term investors are likely to ride this rally until the elections in November or until a successful vaccine against COVID-19 is developed, tested and applied.
The elections are likely to be the source of turmoil especially if there is a delay or other major disruptions that produce lawsuit after lawsuit. The financial markets could be disrupted. The government disrupted. The funny thing is, this lack of confidence will ironically cause investors to buy more U.S. Treasurys, driving interest rates even lower. Lower rates will continue to provide the support for gold prices.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
More From FXEMPIRE:
- Natural Gas Price Fundamental Weekly Forecast – Strengthens Over $2.149, Weakens Under $2.136
- Natural Gas Price Forecast – Natural Gas Continue to Trade in Same Range
- USD/CAD Daily Forecast – Test Of Support At 1.3330
- GBP/JPY Price Forecast – British Pound Continues Consolidation Against Yen
- Gold Price Forecast – Gold Markets Gap Higher but Stay Relatively Quiet
- GBP/USD Price Forecast – British Pound Pulls Back to Major Level