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James Hyerczyk
Comex Gold

Gold futures are trading better but off its intraday high shortly after the regular session opening on Wednesday. Gains are being capped by an intraday turnaround in the U.S. Dollar and a rebound in U.S. Treasury yields that had been under pressure earlier in the session.

At 14:19 GMT, February Comex gold is trading $1858.60, up $14.40 or +0.78%.

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Expectations of More Stimulus

Although the market has been primarily tracking the direction of Treasury yields, the price action on Tuesday and Wednesday appear to be tied to the anticipation of more details on U.S. fiscal stimulus measures.

U.S. President-elect Joe Biden said he would unveil a plan on Thursday to inject the coronavirus-hit economy with “trillions” of dollars in relief measures.

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Fed Activity Being Tracked

For nearly a week, benchmark 10-year Treasury yields hovered close to near 10-month highs, and the U.S. Dollar held firm, making dollar-denominated gold a less-desirable investment.

Yields rose because investors are betting on a faster recovery in the U.S. economy if COVID-19 vaccinations gather pace. This event could encourage Federal Reserve policymakers to consider easing up on their bond purchases and eventually make some move toward ending its easy monetary policy.

We could be looking at increased volatility in interest rates, the dollar and gold as investors consider whether the Fed will maintain policy or move faster toward changing it.

“If the U.S. economy is ticking along nicely, the Fed will look to act. The reality is, its balance sheets are bloated and any improvement in the outlook will at least reduce its seamless efforts,” said Michael McCarthy, chief market strategist at CMC Markets.

Daily Outlook

Gold traders showed little reaction to the news that the cost of living in the U.S. rose a bit more quickly than expected at the end of 2020, mainly due to a jump in energy costs, although price pressures at the ‘core’ level remained subdued.

According to the Department of Labor, in seasonally adjusted terms the U.S. consumer price index advanced at a month-on-month pace of 0.4%, which pushed the year-on-year rate of price increases to 1.4%. Economists were looking for a rise from 1.2% in November to 1.4% in December.

Core inflation slowed from 1.7% to 1.6%, as expected. Traders thought core inflation remained rather subdued but uncertainties continued to exists. No one knows if a post-pandemic surge in economic expansion will spike inflation higher. This is making investors nervous.

The release of the Fed’s Beige Book survey of businesses is awaited later on Wednesday. Traders are hoping this shows economic growth on the East Coast is still expanding.

Continue to keep an eye on Treasury yields throughout the session. They are exerting the most influence on gold prices.

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

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