Price of Gold Fundamental Daily Forecast – Fiscal Stimulus Package Too Small to Sustain Short-Term Rally

Gold futures are trading sideways-to-lower on Tuesday as investors continue to assess the impact of the new mutant coronavirus strain in the United Kingdom on the global economic recovery. Meanwhile, traders are showing little response to the long-awaited U.S. economic stimulus package, which suggests the news has already been priced into the market.

At 18:24 GMT, February Comex gold is trading $1871.10, down $11.70 or -0.62%.

End-of-the-year position-squaring and profit-taking could also be contributing to this week’s two-sided trade as well as a firmer U.S. Dollar. Despite last week’s strength and the strong rally at the start of the pandemic, gold has traded mostly sideways to lower since early August as investors moved funds into silver, bitcoin and equities to get a better return.

Better-than-expected U.S. economic data is also pressuring gold prices because it’s reducing the need for additional stimulus early next year.

US Third-Quarter GDP Growth Revised Slightly Higher

The U.S. economy grew at a record pace in the third quarter, fueled by more than $3 trillion in pandemic relief, the government confirmed on Tuesday, but appears to have lost momentum as the year drew to an end amid raging new COVID-19 cases and dwindling fiscal stimulus.

Gross Domestic Product rebounded at a 33.4% annualized rate last quarter, the Commerce Department said in its third estimate of GDP. That was revised slightly up from the 33.1% pace reported last month. It followed a 31.4% rate of contraction in the April-June quarter, the deepest since the government started keeping records in 1947.

The economy remains 3.5% below its level at the end of 2019. Economists polled by Reuters had expected third-quarter GDP would be unrevised at a 33.1% rate.

Short-Term Outlook

Gold could become rangebound over the next month or more with the Fed’s monetary stimulus providing the major support. Meanwhile, short-term speculators are going to have to wait for President-elect Joe Biden to take office on January 20 before they can start pricing in additional fiscal stimulus.

The fiscal stimulus package signed on Monday was insufficient and a bit too late to sustain the current rally in my opinion. It was clearly not enough to sustain either the unemployed or small businesses until the pandemic begins to wind down. Furthermore, without further relief down the road, the U.S. is likely to see another round of fresh layoffs, which would increase the need for additional fiscal stimulus.