Price of Gold Fundamental Weekly Forecast – ‘Small’ Stimulus Package Just Enough to Boost Prices

Gold futures finished higher, posting its first weekly gain in four as the U.S. Dollar weakened on expectations of additional U.S. stimulus. Despite the gain, the short-term trend remains down as investors grapple with the huge return being offered by riskier assets, which tends to weigh on demand for gold and the weaker U.S. Dollar, which tends to support the dollar-denominated asset.

Last week, February Comex gold futures settled at $1840.00, up $51.90 or +2.90%. The prior week, the market lost more than $90.00.

“The market is now expecting higher world GDP growth in 2021, especially with the rolling out of the vaccine, which will create a risk-on environment,” said Bank of China International analyst Xiao Fu.

“But on the other hand, U.S. Dollar weakness and a mix of fiscal and monetary policy, as well as geopolitical risks, are underpinning gold. So you have those two forces coming at the same time.”

Investors Await Further Stimulus

Treasury yields fell last week, driving down the U.S. Dollar and increasing the appeal of gold as an investment. Gold doesn’t pay a dividend nor does an investor earn interest from it, which makes it more valuable as Treasury yields move toward near zero percent. It is an investment, not a safe-haven asset. The safe-havens are Treasurys, the Japanese Yen and the U.S. Dollar.

Yields could continue to fall this week, possibly underpinning gold, as investors bet on another round of pandemic relief funding to be signed off, with Congress having been in stalemate for months over a package.

A bipartisan group of U.S. senators is set to put forward legislation on Monday for an additional stimulus package worth around $908 billion, the Financial Times reported.

House Speaker Nancy Pelosi said on Friday that she saw “momentum” toward a coronavirus stimulus deal. Senate Minority Leader Chuck Schumer one again called for relief funding after data released Friday showed U.S. jobs growth had slowed in November, while President-elect Joe Biden also called for “urgent action” on a stimulus deal.

Expected COVID-19 Surge Could Push Recovery Well into 2021 Despite Vaccine Efforts

Dr. Deborah Birx warned on Sunday that the escalating coronavirus surge is likely to be the most trying event in U.S. history, as hospital systems around the country strain to combat its mounting daily death toll.

“This is not just the worst public health event. This is the worst event that this country will face, not just from a public health side,” Birx, the White House coronavirus response coordinator, said during a masked appearance on NBC’s “Meet the Press.”

Last week, Centers for Disease Control and Prevention Director Dr. Robert Redfield said that the coming months will be “the most difficult time in the public history of this nation.”

Weekly Forecast

This current round of fiscal stimulus, which could be approved by the end of the week, helped provide some support last week, but the price action suggests investors want to see more. This package does not include any money for individual tax payers so they will likely have to wait for President-elect Biden to take office before an even bigger package that includes $1200 checks.

Meanwhile, a more general vaccination for the U.S. public may not be available until February through April.

Gold could be in for a bumpy ride over the near-term because of the constant battle with higher risk investors and the need for additional stimulus. Furthermore, this particular stimulus package is too small to generate huge upside momentum.