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Gold prices rallied Thursday, with a steep decline in the U.S. dollar, the Federal Reserve’s ongoing loose monetary policy and expectations for a new fiscal stimulus package from Washington lifting bullion to its highest finish in almost six weeks.
Gold prices also traded well above their 50-day moving average, a level investors view as a short-term bullish signal, eve if the metal only briefly managed to trade above the key $1,900 mark.
“It’s mainly about the Fed giving the green light for continued easy money and ignoring the fall in the dollar,” Brien Lundin, editor of Gold Newsletter, told MarketWatch.
“Also, the upward momentum is building upon itself,” he said. “The bears made a feeble attempt to stop the rally after [Wednesday’s] Fed meeting conclusion, but they were quickly overwhelmed by the flood of money coming into the sector.”
Lundin also pointed out that “since 2015 the December Fed meeting has often served as a launching pad for a metals rally that extends well into the new year.” It’s a “bit of a self-fulfilling prophecy at this point.”
February gold GCG21, +1.62% rose $31.30, or 1.7%, to settle at $1,890.40 an ounce after touching a high of $1,902. Prices based on the most-active contract finished at their highest since Nov. 6, according to FactSet data. They trade well above its 50-day moving average presently at $1,874.31.
Gold got a boost Wednesday from the Federal Open Market Committee’s last policy update of 2020, when Fed Chairman Jerome Powell “made it very clear that rates are not rising soon, and they are committed to pushing inflation higher,” said Peter Spina, president and chief executive officer at GoldSeek.com.
The Fed on Wednesday emphasized its intention to keep interest rates pinned near 0% to at least 2023 until the economy fully recovers from the viral pandemic.
“Price inflation is brewing but rates are going to remain suppressed by the Fed, meaning the real yields on [Treasurys] are going to go deeper into negative territory,” Spina told MarketWatch. “The prospects of holding negative yielding debt versus zero yielding gold only grows as the global debt surges to record highs in nominal rate category, over $18 trillion now.”
“Investors now see that gold is a much more appealing store of value” than in the U.S. dollar or fiat currency alternatives, he said.
Meanwhile, silver for March delivery SIH21, +4.46% added $1.13, or 4.5%, to settle at $26.181 an ounce.
For the week thus far, gold is on pace for a weekly gain of 2.9%, while silver has risen 8.7% on the week.
Looking ahead, Spina said he expects gold to break to record highs in 2021. It was heading there before COVID-19 hit and “it is now moving faster and more aggressively due to the aggressive responses by central banks and governments.”
The move for the metal also come as Washington lawmakers signaled a deal was near on a roughly $900 billion package of economic relief, which would include extended unemployment benefits, aid to small businesses and another round of checks to Americans struggling to find work.
Congressional leaders are aiming to attach the coronavirus aid deal to a separate $1.4 trillion bill providing full funding for the government through September 2021. To avoid a government shutdown, they need to pass the latter bill by midnight on Friday.
The passage of a stimulus package would be “gold and silver bullish to be sure, but once a package is passed and becomes reality, the market will no longer be ‘looking forward to it’ and so it will be largely, if not wholly, factored into prices,” James Steel, chief precious metals analyst at HSBC, wrote in a daily note.
The focus on additional U.S. aid comes as COVID-19 cases and restrictions on business activity have intensified, threatening the economic recovery from the epidemic.
“Expectations of more government spending and ongoing loose monetary policy” weighed on the dollar, said Steel.
The dollar, as measured by the ICE U.S. Dollar Index DXY, which fell to its lowest level since the spring of 2018, has weakened further against that backdrop. The index is set for a weekly skid of 1.3%. A weaker dollar can make precious metals priced in the currency less expensive for foreign buyers.
Read: How a weaker dollar could help fuel a commodities boom in 2021
A string of U.S. economic data did little to alter the mood on Wall Street. A report on housing starts showed a 1.2% climb in November, with building permits rising 6.2% on the month to 1.64 million.
Separately, a report on weekly unemployment claims showed that new claims rose to the highest level since early September, with initial claims rising to 885,000 from 862,000. That said, continuing state claims fell 273,000 to a 1.55 million rate, the data show.
Among other metals traded on Comex, March copper HGH21, +1.33% rose 1.2% to $3.6015 a pound. January platinum PLF21, +1.48% added 1.4% to $1,050.10 an ounce, while March palladium PAH21, -0.35% shed less than 0.1% to $2,347.50 an ounce.
