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James Hyerczyk
Comex Gold

Gold futures dipped on Friday after jumping to a one-month high earlier in the week as the dollar’s small recovery reduced demand for dollar-denominated assets. Weaker investment sentiment weighed on the global equity markets, encouraging investors to move money into the safe-haven dollar and book profits in gold. Year-end position-squaring may have also persuaded investors into exiting gold.

On Friday, February Comex gold futures settled at $1888.90, down $1.50 or -0.08%.

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However, the biggest influence on gold prices was the lack of progress toward a new U.S. COVID-19 relief package. Gold rode the tails of a potential stimulus deal all week, and it can fall early next week if a deal isn’t reach in a timely manner.

The pattern has been pretty simple this month. Gold prices have risen on positive headlines on stimulus, and gold has pulled back when the headlines signaled a setback. The stimulus news has clearly set the short-term tone.

The long-term tone is also clear since its bullish trend is being controlled by the Federal Reserve through monetary policy. Last week, speculators drove gold to its highest level since November 16 after the U.S. Federal Reserve pledged to continue pouring cash into financial markets and keep interest rates low until the U.S. economic recovery is secure.

It may come as a surprise to the “gold is a safe-haven asset” investor, but the investment has showed no response to the surge in global coronavirus cases and deaths. Investors could be ignoring gold because they believe in the vaccines or perhaps the safe-haven money that is flowing out of the U.S. Dollar may be moving into equities and bitcoin.

You’ve been right on gold this year if you’ve bet on a combination of monetary and fiscal stimulus weakening the U.S. Dollar. You’ve been right recently because the Fed is going to remain accommodative, and the Congress is finally going to deliver some stimulus.

However, last week the Fed essentially reiterated it support pledge, and the current fiscal stimulus in the works is relatively small when compared to the package revealed in March. Furthermore, with the rollout of the COVID-19 vaccines, the global economy is moving closer to recovery. Therefore, we don’t see much upside in gold on this current move.

Early next year, we could see a spike to the upside because the current trajectory of the virus is going to warrant even more stimulus once the Biden administration takes over, but that could be it as far as fiscal stimulus is concerned because at some point the vaccines are going to begin working to stem the impact of the pandemic.

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