Price of Gold Fundamental Weekly Forecast – Trend Down, but Needs Stimulus Help to Sustain Upside Momentum

Gold futures inched higher last week as traders pinned some hopes on a U.S. coronavirus aid package that remained a long way off as Democrats and Republicans had reached an impasse tied to the size of the stimulus. Meanwhile, the U.S. Dollar firmed as stocks retreated from their highs, weakening demand for dollar-denominated gold.

Last week, February Comex gold settled at $1843.60, up $3.60 or +0.20%.

Congress at an Impasse over Fiscal Stimulus

Congress remains at an impasse over a coronavirus stimulus package. Republican Senate leaders rejected a $908 billion aid package, proposed by a bipartisan group of lawmakers.

The U.S. House of Representatives approved a one-week extension to the current government relief funding on Wednesday, in a bid to give lawmakers more time to agree on the next package. However, House Speaker Nancy Pelosi suggested on Thursday that negotiations could run through the holiday period.

“At this point, markets have priced in and are expecting stimulus near term, so if that really does not happen by the 18^th (the new budget dead-line) that will be a mild headwind” for risk assets, wrote Tom Essaye, founder of The Sevens Report.

Weakening Economic Data, Rising COVID Cases, New Restrictions Fueling Need for More Stimulus Now

Last Thursday, the U.S. Labor Department said weekly jobless claims jumped to 853,000, its highest point since September 19 and up from 716,000 in the previous week.

Meanwhile, the coronavirus pandemic is still trending in the wrong direction. The country recorded more than 2,700 virus-related deaths on Thursday, bringing the national death toll to at least 292,190, according to data compiled by Johns Hopkins University.

Finally, New York Governor Andrew Cuomo announced on Friday that indoor dining will be shut down in New York City starting Monday amid a rise of COVID-19 hospitalizations.

Weekly Forecast

I don’t see the start of vaccinations as having a major impact on gold prices since it has been priced in for weeks, but the uncertainty over the next round of fiscal stimulus is a big deal.

Last week’s new efforts to come to an agreement on coronavirus relief was elusive as Senate Majority Leader Mitch McConnell, R-Ky., signaled Senate Republicans will not support a $908 billion bipartisan proposal. Meanwhile, the House of Representatives has adjourned until next week.

The clock is ticking for Congress to authorize new funding to prevent a government shutdown and pass new coronavirus stimulus relief.

As long as both sides are still talking, gold will have a chance to develop a support base, but time is running out until next year, so the failure to reach a deal could drive prices lower over the near-term.

The Fed is likely to help sustain the long-term bullish outlook on Wednesday when it releases a monetary policy statement that is expected to reveal a dovish tone. The main concern for the Fed is to save the economy from slipping back into recession.

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