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James Hyerczyk
Comex Gold

Gold futures finished higher last week for first time in three weeks, helped by bleak comments from the U.S. Federal Reserve and worries over a resurgence of COVID-19. Gains may have been capped amid some optimism over the speed of the U.S. recovery and a more stable U.S. Dollar. Furthermore, heightened volatility in the U.S. equity markets also encouraged investors to sell gold positions to raise cash to cover stock market losses and meet margin calls.

Last week, August Comex gold settled at $1737.30, up $54.30 or +3.23%.

Fed Vows to Support US Economy’s ‘Long Road’ to Recovery After Dire 2020

The U.S. Federal Reserve on June 10 signaled its plans of extraordinary support for an economy facing a torturous slog back from the coronavirus pandemic, with policymakers projecting the economy to shrink 6.5% in 2020 and the unemployment rate to be 9.3% at year’s end, Reuters said.

In the first economic projections of the pandemic era, U.S. central bank policymakers put into numbers what has been an emerging narrative:  that the shutdowns, restrictions and other measures used to battle a health crisis will echo through the economy for years to come rather than be quickly reversed as commerce reopens, Reuters reported.

Federal Reserve Chairman Jerome Powell added, “It is a long road. It is going to take some time,” he said. “We can use our tools to support the labor market and the economy and we can use them until we fully recover.”


Weekly Forecast

The comments from the Federal Reserve are supportive for gold, but there was nothing surprising enough that could launch prices to new highs over the short-run.

The long-term bullish trend was definitely supported when officials said they see the unemployment rate falling to 6.5% at the end of 2021 and 5.5% at the end of 2022 – still a full 2 percentage points above where it was at the end of last year, representing millions of lost years of work and wages.

Also supporting the longer-term outlook for gold, all 17 current Fed policymakers see the key overnight interest rate, or federal funds rate, remaining near zero through next year, and 15 of 17 see no change through 2022.

Short-term, it seems to be a different story. While the longer-term outlook is there as a safety net for traders, making gold attractive on the dips, the market appears to lack a catalyst to drive prices substantially higher at current price levels. Traders are being distracted by sideways Treasury yields, strong demand for risky assets and confusion over whether the dollar is still the go to safe-haven asset.

Lower share prices and falling yields should be supportive for gold, but if the moves drive investors into the U.S. Dollar then short-term gold traders may just have to settle for a rangebound trade.

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