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James Hyerczyk
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Comex Gold

Gold futures finished higher last week after recovering from early struggles. Gold eased on Monday as the dollar strengthened, although economic uncertainties limited losses for the precious metal as investors awaited developments from central banks.

After a steep plunge early in the session on Tuesday, gold prices stabilized before moving higher into the close as doubts over a global economic recovery countered pressure from a stronger dollar ahead of policy strategies from the European Central Bank on Thursday and this week’s U.S. Federal Reserve on September 16.

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Late in the week, gold jumped as the dollar weakened after the European Central Bank kept its policy unchanged and U.S. jobless claims held at high levels, dimming hopes of a quick economic recovery from the effects of the coronavirus pandemic.

The market ended the week on a weak note despite closing higher for the period after the U.S. Congress failed to reach an agreement on a coronavirus-aid package.

Last week, December Comex gold settled at $1947.90, up $13.60 or +0.70%. This was up from a two-week low at $1911.70.

Essentially, the main influences on the price action were the ECB and U.S. Congress decisions. ECB President Christine Lagarde on Thursday refrained from signaling that the bank would expand stimulus, while the U.S. Senate blocked a Republican bill for new coronavirus aid.

Weekly Forecast

Gold has risen 28% this year, supported by massive stimulus by global central banks, with the precious metal perceived as a hedge against inflation and currency debasement. However, even though the ECB didn’t deliver any stimulus at this meeting, it left open the possibility of additional stimulus before the end of the year.

Nonetheless, the ECB news was enough to send the Euro higher, driving down the U.S. Dollar Index and helping to support gold prices.

Another surprise that may have helped weaken gold prices was the news that the U.S. Senate blocked a Republican bill that would have provided around $300 billion in new coronavirus aid.

It seems wherever we look we see reasons for higher prices and reasons for lower prices. This is creating a rangebound trade.

COVID-19 vaccine developments and improving economic data present near-term headwinds to gold, while low and negative interest rates, a weaker U.S. Dollar and expectations for further stimulus keep the balance of risks to the upside.

Looking ahead to the Federal Reserve announcements after the two-day meeting on September 16, we expect to see a very carefully worded statement. The Fed is going to have to demonstrate patience before lifting rates as it waits for the economy to pick back up. But there is bad news. It might not have much ammunition left in its arsenal to stimulate the economy if it ends up needing more help. Therefore, we expect Fed Chair Powell to target Capitol Hill and ask for Congress to do more.

The bottom line:  Don’t expect the Fed to say anything bullish for gold.

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

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