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James Hyerczyk
Comex Gold

Gold rallied to its highest level since November 16 last week as investors embraced the dovish tone of the U.S. Federal Reserve while expressing optimism in the government’s ability to provide much needed fiscal stimulus. On Sunday we learned that Congress did come through with another round of fiscal stimulus. The news was good for Americans, but gold investors may not show much of a reaction since it’s been priced into the market for about two weeks.

Last week, February Comex gold settled at $1840.00, up $51.90 or +2.90%.

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US Congress Agrees to $900 Billion COVID Stimulus Deal

Congress reached a deal Sunday on a $900 billion coronavirus relief package, a long-delayed effort to boost an American health-care system and economy buckling under the weight of the pandemic.

According to CNBC, Congressional leaders announced agreement on a bill – which would send new federal assistance to households, small businesses and health-care providers for the first time in months and provide $1.4 trillion to fund the government through September 30 – after days of start-and-stop efforts to finish a deal.

The deal came after a last-second fight over a Republican-backed provision that would have restricted the Federal Reserve’s emergency lending powers. Lawmakers eventually reached a deal to wind down lending facilities created by the CARES Act at the end of the year, repurpose more than $400 billion left over in the programs and bar the creation of identical provisions in the future.

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Fed Pledges to Buy Bonds Until the Economy Returns to Full Employment

The Fed on December 16 said it would support the economy and promised to continue buying Treasury bonds until the U.S. returns to full employment.

It also upgraded its outlook for the broader U.S. economy and held its benchmark interest rates near zero following the conclusion of its two-day meeting.

Central bank leaders said they would continue to buy at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals,” the post-meeting statement said.

“These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the Federal Open Market Committee added in a statement that gained unanimous approval.

Weekly Forecast

Gold traders also reacted to a weaker dollar last week, this was the first time in weeks that we saw this relationship with most traders primarily focused on fiscal and monetary stimulus. If this relationship is renewed then gold prices could fall if the dollar strengthens due to oversold conditions, end of the year profit-taking and year-end position-squaring.

The theme of “buy the rumor, sell the fact” could also be renewed since many feel that the fiscal stimulus news has been priced into gold for about two weeks.

Over the long-run, gold will be supported by the monetary stimulus from the Federal Reserve, but the short-term will be highlighted by volatility. Traders are going to have the opportunity to react to the current fiscal stimulus package then early next year they we be anticipating another package from the Biden Administration.

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

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