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James Hyerczyk
Gold

Gold futures are edging higher on Thursday, helped by a slight dip in U.S. Treasury yields and a little giveback by the U.S. Dollar against a basket of major currencies.

The precious metal is trading inside a long-term retracement zone at $1787.30 to $1711.70, so it will come as no surprise if value-seeking, bottom-pickers start to show up to prevent a steeper price slide.

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At 11:32 GMT, April Comex gold is trading $1784.60, up $11.80 or +0.67%.

We haven’t seen much talk lately about gold being a safe-have asset. Those buyers have once again been burned by that old-style investing strategy.

We have seen much buying tied to progress being made toward President Joe Biden’s $1.9 trillion stimulus plan either. Gold investors are watching this story and probably pricing in different scenario ranging from $1.9 trillion to $1.0 trillion.

The fiscal stimulus package is massive, but it’s been talked about so much and for so long that the surprise element has been removed. Furthermore, this package is not about saving a cratering economy like we saw in March and April 2020, but rather designed to provide support for a struggling economy that may be on the brink of recovering rather quickly.

This is what the long-term bullish gold speculators and analysts don’t seem to understand. Gold has to be treated differently when governments and central banks are flooding an economy with fiscal and monetary stimulus when it’s trying to prevent a prolonged recession than when it’s trying to speed up a recovery.

When an economy is crashing and stimulus is being thrown at it, gold is a valuable asset to have because of the fear of the unknown. This was the condition last year when the pandemic started.

Throwing money at an economy that is on the cusp of strengthening (even if it takes a year to get back to pre-pandemic levels) means that officials see light at the end of the tunnel. The fear that drove gold prices to record highs last year is just not here. With fresh stimulus and a successful vaccine rollout, the global economy is strengthening, not moving closer to a prolonged recession. So where is the incentive to hold gold?

The answer is, gold is an investment so investors want to buy value and sell it when it when it’s overpriced. Inside a long-term 50% to 61.8% retracement zone at $1787.30 to $1711.70, investors may see value. But near the January 6 top at $1966.80, about the time government’s started to rollout the vaccines, investors may not see long-term value.

It looks like we’ve entered the “buy weakness”, “sell rallies” stage of the investment cycle at least over the short-run.

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

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