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James Hyerczyk
Gold, Silver, Platinum, Palladium

Gold futures are edging higher early Monday, but so far the volume and volatility have been subdued. The market is getting a lot of support with demand for risky assets lower, Treasury yields falling and the U.S. Dollar under pressure against a basket of major currencies.

At 08:52 GMT, August Comex gold is trading $1812.60, up $2.60 or +0.15%.

Potential Bullish Factors

U.S. stock index futures declined early Monday, giving back earlier gains as investors tried to build on last week’s solid performance in the benchmark S&P 500 Index and blue chip Dow Jones Industrial Average, while the NASDAQ Composite index tried to get back on the same page after diverging from the other two major indexes with a lower close last week.

Generally speaking, if the technology sector starts to flatten or move lower, all major indexes could start to come down. This could benefit gold if investors decide to park their money in the precious metal as a hedge against a steep decline.

However, we have seen cases this year when gold and stocks actually declined together. This usually occurs when investors decide to use the U.S. Dollar as a safe-haven buy. Furthermore, a big break in the stock market could encourage gold investors to sell positions in order to cover losses and meet market calls.

U.S. government debt prices were higher (meaning rates were down) on Monday morning as cases of the coronavirus in the U.S. continued to surge, while leaders on both sides of the Atlantic looked for agreements on new fiscal stimulus to shore up their economies.

Ultimately, the direction of gold prices will be determined by the direction of U.S. Treasury yields. Gold prices could spike higher if Treasury yields start to price in negative rates.

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New Fiscal Stimulus in Focus

Gold investors have turned their eyes to Washington as lawmakers begin negotiations on new stimulus measures. There is urgency because expanded unemployment benefits are set to expire later this month.

Traders are starting to price in a $1-$1.5 trillion package. Coming in at the high end could spike gold prices higher, but I don’t expect this news to trigger a new leg higher. This type of stimulus is just too short-term.

The announcement of a major stimulus move by the Fed would have a longer-lasting effect on gold prices. The Fed has been quietly monitoring the economic data and is not hinting of any imminent danger to the recovery although several Fed policymakers have said that conditions will worsen if there is a second-wave of the pandemic.

For a look at all of today’s economic events, check out our economic calendar.
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