Price of Gold Fundamental Daily Forecast – Short-Term Bulls Screaming for Fiscal Stimulus Package

Gold futures are trading flat on Tuesday with gains being capped by pressure from optimism brought about by positive vaccine trial data and prices being underpinned by concerns that spiking U.S. coronavirus cases will derail the fragile economic recovery, leading to the need for additional stimulus from the government and Federal Reserve.

At 10:12 GMT, December Comex gold is trading $1888.40, up $0.60 or +0.03%.

Monday’s Recap

The fundamentals behind the weeklong tight trading range can be summed up in two sentences:

Gold dropped as much as 1.3% on Monday after drugmaker Moderna Inc said its experimental vaccine was 94.5% effective in preventing COVID-19 based on interim data from a late-state trial.

The selling stopped after President-elect Joe Biden on Monday called on Congress to come together and pass a new coronavirus relief package.

That’s it in a nutshell, vaccine bad for gold. Stimulus good for gold.

However, we still have to consider the short-term outlook and the long-term outlook

While the global economy seems to be doing well from a production standpoint, the employment situation remains bad and that is the primary reason why the central banks will continue to be accommodative over the long-run. Central bank policymakers are doing all they can to prop up the economy, but there are still risks of recession without further fiscal stimulus.

The politicians seem to be looking at the economic data and saying we still have time to get a fiscal package together, but the Fed, for example is saying the U.S. economy needs stimulus now. Additionally, several policymakers in Europe said on Monday, the Euro Zone is facing a drawn-out recovery from a deep recession and needs more support from both the European Central Bank and governments.

Daily Forecast

We see another day of rangebound trading because of the two forces working against each other – the short-term need for fiscal stimulus and the long-term monetary stimulus already in place versus the chances of a swift economic recovery if the vaccines prove to be effective in real time.

Felicity Emmett, a senior economist at ANZ, in a Tuesday note, may have summed up the current drivers of the price action in gold precisely, “Equity markets focused on the improving medium-term growth implications, which appear to be brightening from H2 2021 onwards. Yet the current virus surge is stifling near-term growth prospects.”

My interpretation of this statement as it applies to gold means the vaccine is not going to fix the short-term outlook of the economy, but new fiscal stimulus will help. But after the second quarter, if all goes well with the vaccine then the global economy may be able to flourish on central bank monetary stimulus alone.

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