Price of Gold Fundamental Daily Forecast – Fed Says Just Enough to Wake Up Short-Term Bullish Traders

Gold futures are trading higher on Thursday, boosted by dovish comments from the U.S. Federal Reserve about the state of the U.S. economy. A downbeat economic outlook from the Fed stoked speculation it would have to add to already historic levels of stimulus to safeguard recovery.

On Wednesday, the Fed predicted the U.S. economy would shrink 6.5% in 2020 and unemployment would still be at 9.3% at year’s end. This announcement encouraged investors to sell higher risk currencies and equities, and buy safe-haven Treasury Notes and Bonds, driving yields lower. Lower yields tend to boost demand for gold.

At 10:34 GMT, August Comex gold is trading $1739.40, up $18.70 or +1.09%.

Lower Rates, More Stimulus from Federal Reserve

The prospect of lower interest rates is bringing back the gold bulls after nearly two months of sideways to lower price action. In his press conference on Wednesday, Fed Chair Jerome Powell said he was “not even thinking about raising rates”. Instead, he emphasized recovery would be a long road and that policy would have to be proactive with rates near zero until the end of 2022.

The tone of Powell’s comments suggests his focus remains on the downside risks to the economy. This flies in the face of risk-takers who have been betting heavily on a V-Shaped recovery.

With Powell dampening the V-Shaped outlook, stock market traders are trimming long positions, and moving money back into Treasurys and gold. Powell’s message also teems of uncertainty, which means the Fed is likely to inject further stimulus, probably by September.

One such form of stimulus could be interest rate caps. Powell confirmed the Fed was studying yield curve control, a form of easing already employed by Japan and Australia.

Daily Forecast

The Fed didn’t really surprise anyone on Wednesday. They delivered what investors were looking for and what investors had already priced into the market.

All short-term bulls needed to hear was the Fed’s promise of continued support. But the Fed went even further by supporting longer-term gold bulls by saying they saw the need to keep their benchmark interest rate near zero through at least 2022.

New reports of COVID-19 spikes around the world are also providing support. “As the pandemic shows no signs of slowing down, so will uncertainty and that along with rising trade tensions should keep strong safe-haven demand for gold,” ANZ analysts said.