Price of Gold Fundamental Daily Forecast – Fed Stimulus Measures, Weaker Dollar Providing Support

Gold futures are edging higher on Tuesday, helped by a weaker U.S. Dollar, but capped by rising demand for higher risk assets. The catalysts supporting the market are the Fed’s decision to buy corporate bonds, which some read as a form of stimulus, and worries that a second wave of coronavirus infections could derail the current economic recovery.

At 11:40 GMT, August Comex gold is trading $1737.70, up $10.50 or +0.61%.

The volume is a little on the light side ahead today’s slew of reports from the United States including Retail Sales, Capacity Utilization, Industrial Production and Business Inventories. Fed Chairman Jerome Powell is also scheduled to testify before Congress at 14:00 GMT.

Fed Plans to Start Buying Corporate Bonds

The U.S. Federal Reserve said it would start purchasing corporate bonds in the secondary market, driving global stocks higher and weighing on the U.S. Dollar. The weaker dollar is driving up demand for dollar-denominated gold.

This move will result in a massive amount of liquidity being injected into the market, which should be supportive for gold.

Bank of Japan Pledges More Stimulus

In another move that injects a massive amount of liquidity into the global economy, the Bank of Japan (BOJ) said it would increase the nominal size of its lending packages for cash-strapped firms to $1 trillion from about $700 billion announced last month.

US Fiscal Stimulus:  Trump is Preparing $1 Trillion Infrastructure Proposal

It’s not a $1 trillion cash infusion, but President Donald Trump’s $1 trillion infrastructure proposal should still be considered fiscal stimulus and supportive for gold prices.

Citing people familiar with the plan, Bloomberg News reported the Trump administration is drawing up a $1 trillion infrastructure proposal. The report said a preliminary version being prepared would set aside the majority of the money for traditional infrastructure projects such as roads and bridges, though funds would also be reserved for 5G wireless infrastructure and rural broadband.

Daily Forecast

The overall tone for gold is likely to be firm if demand for risky assets encourages investors to buy stocks and sell U.S. Dollars.

Longer-term investors should embrace the Fed’s announcement that it is going to expand its operations into the secondary market.

Fed Chairman Jerome Powell’s testimony before Congress could be the wildcard today. He may be quizzed on last week’s Fed monetary statement, and his assessment that economic growth will be down about 6.5% this year and the unemployment rate will remain near 10%.

Congress is also likely to question yesterday’s announcement that the Fed will begin buying corporate bonds in the secondary market.

Gold bulls will be looking for comments suggesting more stimulus to back the economic recovery.

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