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Price of Gold Fundamental Daily Forecast – Prices Jump After Fed Pledges Unlimited Asset Purchases

The Fed announced an open-ended asset purchase program, which the central bank will run in the “amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”
James Hyerczyk

Gold prices are rebounding shortly after the regular session opening, erasing earlier weakness after the Federal Reserve unveiled new measures to keep markets working properly. Gold remains highly correlated with the U.S. stock market as Wall Street awaited an agreement by government policymakers to provide economic stimulus and a rescue plan to cushion the blow from the coronavirus pandemic.

At 13:07 GMT, June Comex gold is trading $1527.40, up $39.30 or +2.64%.

Fed Attempts Another Rescue

Today’s rally started when the Fed announced an open-ended asset purchase program, which the central bank will run in the “amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

The move by the Fed represents a potentially new chapter in the Fed’s “money printing” as it commits to keep expanding its balance sheet as necessary, rather than a commitment to a set amount.

The Fed also will be moving for the first time into corporate bonds, purchasing the investment-grade securities in primary and secondary markets and through exchange-traded funds. The move comes in a space that has been considerable turmoil since the crisis has intensified and market liquidity has been sapped, CNBC reported.

Other initiatives include an unspecified lending program for Main Street businesses and the Term Asset-Backed Loan Facility implemented during the financial crisis. There will be a program worth $300 billion “supporting the flow of credit” to employers, consumers and businesses and two facilities set up to provide credit to large employers.

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US Stimulus Package ‘Very Close’

Treasury Secretary Steven Mnuchin told CNBC’s Jim Cramer on “Squawk Box” Monday that Congress was “very close” to getting a fiscal package done, noting it must be pushed forward “today.”

“We’re using some funds we have, but we need Congress to approve additional funds today so we can more forward and support American workers and the American economy,” Mnuchin said.

Daily Forecast

The combination of monetary and fiscal stimulus is very powerful. This should provide near-term support for gold, but prices could be capped later today if Congress doesn’t get its stimulus deal completed.

Upside momentum could drive the June Comex gold market to $1580.40 to $1610.50 over the near-term.

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