What a Difference a Day Makes, as Market Sentiment for Gold Reacts to New Aid Proposal

The new comprehensive aid package was broken into two separate bills; the first bill will require $748 billion and contains only the components that both democrats and republicans have already agreed upon. The second bill will entail $160 billion to fund the components that cause negotiations to a stalemate.

According to CBS News, “Senator Joe Manchin, a moderate Democrat from West Virginia, placed two thick stacks of paper on the podium as he announced a comprehensive $748 billion measure, and an additional $160 billion for state and local funding.

After placing the stacks of paper on the podium before him Senator Joe Manchin said, “Bipartisanship and compromise is alive and well in Washington, contrary to what you’ve been hearing. We’ve proven that,”.”

The senator was surrounded by a group of his fellow collaborators. One of those collaborators Republican Senator Susan Collins called it a, “Christmas miracle” saying that “lawmakers had worked during the Thanksgiving holiday to create this bill.”

By breaking up the original bipartisan proposal of $908 billion into two bills with the most needed aid that has already been agreed upon by both the House and Senate, this aid package will likely be passed. The first bill of $748 billion includes additional funding for the paycheck protection program, unemployment insurance, schools, and allocates funds for vaccine development and distribution. All of these components within this bill have been accepted upon by both Republicans and Democrats.

The second bill contains components that either the Republicans or the Democrats had issues with. It contains the issues that stalemated the first proposal which had little or no chance of passing. The $160 billion proposal contains relief for state and local governments and a liability shield for businesses. These were the two issues that either the Republicans or the Democrats had strong opposition to.

There is brilliance in breaking the first aid proposal into two separate aid bills. It allows the most important and needed aid to quickly be passed by both the House and Senate. The issues that caused the negotiations to come to a stalemate have now been removed and can be dealt with at a later date, in a separate bill that allocates the remaining $160 billion contained in the first bipartisan proposal.

This news was a key factor in gold and silver pricing today as traders witnessed a key reversal that was needed to shift market sentiment.

As of 4:30 PM EST gold futures basis, the most active February Comex contract is fixed at $1857.80, gaining $25.60 (+1.40%) on the day. Silver futures basis the most active March contract gained $0.60, or 2.51%, and are currently fixed at $24.655.

Concurrently, the last FOMC meeting began today and will conclude on Wednesday with a statement released by the Federal Reserve which will be followed by a press conference in which Chairman Powell will address the issues discussed during the meeting and have a question-and-answer period following his opening remarks.

According to Reuters, “If 2020 was the year the Federal Reserve overhauled its game plan for supporting the U.S. economy, 2021 will be the year its new approach gets tested should a coronavirus vaccine deliver the lift that many analysts expect.”

The Reuters article suggests that during this final meeting of the year the Fed will keep its interest rates (Fed funds) near zero, and signal that these low rates will continue for years to come. Many analysts will focus on guidance regarding how long the Federal Reserve will continue its massive bond-buying program.

The combination of the new aid proposal revealed today and comments by the Federal Reserve tomorrow could be the undercurrent that was needed to move market sentiment for gold from bullish to bearish. If that is the case, we could see a major rally begin and continue through the rest of the month into the first months of 2021.

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Wishing you as always, good trading and good health,

Gary S. Wagner