Price of Gold Fundamental Daily Forecast – Surging on Stimulus Expectations, Escalating US-China Relations

Gold futures are trading sharply higher early Wednesday on the hopes that key parts of the global economy are heading in the right direction, which are weighing on the U.S. Dollar’s safe-haven appeal. A weaker dollar tends to drive up foreign demand for dollar-denominated gold.

Gold is also being supported by falling U.S. Treasury yields and a stronger Euro, which hit an 18-month high after European Union policymakers on Tuesday sealed a 750 billion Euro recovery plan.

At 09:37 GMT, December Comex gold is trading $1880.50, up $10.90 or +0.58%.

The most important driver of the rally, however, are expectations of more stimulus to revive pandemic-hit economies. More stimulus measures in the U.S. will keep the pressure on interest rates, driving them closer to zero percent, which will push down the value of the dollar, while making non-yielding assets like gold more desirable.

Other Factors Influencing Gold Prices

Late Tuesday, President Donald Trump warned the coronavirus would probably get worse before it gets better. Fear of the virus itself is not enough to drive gold prices higher, but the fear of the unknown is. Trump gave no timetable for the end of the pandemic, which could mean there could be several more rounds of stimulus packages.

Congress returned to Washington to kick off talks on the next coronavirus relief bill. Lawmakers face pressure to pass legislation before the end of the month, when the $600 per week federal unemployment insurance benefit is set to expire.

Republicans and Democrats have to resolve differences on several issues, including the jobless benefit, liability protections for businesses, aid to state and local governments and direct payments to Americans.

BREAKING NEWS

Tensions between the United States and China escalated just a short while ago after the U.S. State Department confirmed it had ordered China to close its consulate in Houston, Texas, prompting Beijing to insist on firm countermeasures unless Washington immediately reverses its decision.

U.S. State Department spokesperson Morgan Ortagus said the directive to close China’s Consulate General Houston had been made to protect American intellectual property and the private information of its citizens.

Meanwhile, long-time market bull Ed Yardeni warns news risks from the surge in coronavirus cases to renewed tensions with China could spark a 20% to 30% stock market meltdown. This might prompt the Fed to come in with a huge amount of liquidity that would likely put further upward pressure on gold prices.

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