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James Hyerczyk

Gold futures are soaring past $2000 early Wednesday on the back of a weaker U.S. Dollar and increasing bets on more fiscal stimulus from the U.S. government. At least that’s what the news services want you to believe, but as an analyst I’d like to dig a little deeper into what I believe is triggering the price surge.

At 10:50 GMT, December Comex gold is trading $2057.60, up $36.60 or 1.81%.

At the start of the week, I was a little cautious about gold over the short-run because of the mostly sideways action since hitting $2000 a week ago. My analysis was based on normal chart reading combined with the thinking that the fiscal stimulus package had already been priced into the market despite the ongoing debate in Congress.

So when I saw today’s spike to the upside, I had to conclude that there was something else behind the sharp rise in prices. I don’t think it was Congress moving closer to an agreement on another stimulus package. That idea has been floated for weeks. I believe it is the news that the Fed is expected to make a major commitment to ramping up inflation soon.

From what I’ve seen, fiscal stimulus packages provide support and create a steady rise in prices, but when the Fed makes a move that’s bullish for gold, buyers get a little more excited because its decisions tend to last a lot longer and they usually involve a major commitment.

According to a piece from CNBC, “In the next few months, the Federal Reserve will be solidifying a policy outline that would commit it to low rates for years as it pursues an agenda of higher inflation and a return to the full employment picture that vanished as the coronavirus pandemic hit.”

“Recent statements from Fed officials and analysis from market veterans and economists point to a move to “average inflation” targeting in which inflation above the central bank’s usual 2% target would be tolerated and even desired.”

Daily Forecast

With the new policy initiative expected to be announced as soon as September, gold buyers are wasting no time and gobbling up the precious metal on Wednesday. Smart investors aren’t waiting for the Fed to make the announcement at its September meeting; the long bets are being made now.

Gold is likely to be a lot higher when the Fed finally reveals its plan. The uneducated trader will buy that headline, but guess who will be selling it to them? Those speculators that bought the news the first week in August.

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