Gold Price Forecast: Dovish FOMC Could Underpin Bullion Ahead of NFP

 

GOLD PRICES FUNDAMENTAL FORECAST: MIXED

• The potential adjustment of the Federal Reserve’s bond-purchasing program may underpin gold prices.
• Declining real yields and rising inflation expectations also suggest a rebound higher could be in the offing.
• Non-farm payrolls and a flurry of PMI releases may dictate the near-term outlook for bullion.

DOVISH FOMC TO UNDERPIN GOLD PRICES

Gold prices have taken a beating in recent weeks, falling over 8% from the monthly high, after a slew of positive vaccine results triggered a rotation away from the anti-fiat metal and into growth-related assets.

However, this correction lower could prove short-lived given recent comments from the Federal Reserve suggesting the provision of additional monetary stimulus is on the table.

The minutes from the FOMC’s November meeting showed that “many participants judged that the Committee might want to enhance its guidance for asset purchases fairly soon”.

The central bank also noted that “while participants judged that immediate adjustment to the pace and composition of asset purchases were not necessary, they recognized that circumstances could shift to warrant such adjustments”.

Source – COVID Tracking Project

Considering Treasury Secretary Steven Mnuchin refused to extend several of the Fed’s lending facilities past their December 31 deadline, and with the nation averaging over 160,000 new cases of Covid-19 a day, the central bank may look to act sooner rather than later.

Indeed, several officials “emphasized the important roles” these lending facilities have played “in restoring financial market confidence and supporting financial stability”, adding that “these facilities were still serving as an important backstop in financial markets”.

Moreover, the absence of a much-needed fiscal stimulus package, in tandem with initial jobless claims figures spiking to five-week highs, could put further pressure on the Fed to act in the near term.

US INITIAL JOBLESS CLAIMS

Source – Trading Economics

FALLING REAL YIELDS, RISING INFLATION EXPECTATIONS TO NURTURE BULLION’S REBOUND

The recent breakdown in gold’s relationship with real yields and inflation expectations could also imply that bullion’s turn lower was driven more by portfolio repositioning, than a true shift in overall market sentiment.

After all, as a non-yielding asset, gold prices tend to move higher on the back of falling real rates of return.

Gold is also widely considered a hedge against inflation and may continue to benefit from rising inflation expectations in the medium-term.

Therefore, prices may recover in the coming weeks on the back of falling real yields and rising consumer price growth expectations.

Data Source – Bloomberg

NON-FARM PAYROLLS, NOVEMBER PMI FIGURES

Looking ahead, a flurry of PMI figures out of the US for November will be intently scrutinized by market participants to assess how the world’s largest economy is coping with a third-wave of infections, ahead of the volatility-inducing non-farm payrolls report.

Better-than-expected data may diminish the need for additional monetary support and in turn cap the yellow metal’s upside potential.

Conversely, disappointing economic data prints could put a premium on gold if investors begin to price in further easing from the Federal Reserve.

Gold Price Forecast: Dovish FOMC Could Underpin Bullion Ahead of NFP

Dollar Losses Put On Hold But Long Term Outlook Tilts To Downside

 

Dollar losses put on hold but long-term outlook tilts to downside

TOKYO (Reuters) - The dollar was on the defensive on Thursday as downbeat U.S. economic data and optimism about corona-virus vaccines prompted investors to seek out riskier assets tied to global commodities and emerging markets.

The British pound traded near a more than two-month high against the dollar as investors awaited details on trade talks between Britain and the European Union this week.

The dollar's fall has been so rapid that it could rebound in the short term, market watchers said, but some investors still expect a decline over the longer term as they shift positions in expectation that the corona-virus outbreak will wane next year.

"A China-led recovery in the global economy and commodities should benefit commodities currencies," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

"The outlook is good, but we are reaching levels where authorities might feel some concern. Other emerging market currencies with good fundamentals should benefit."

Against the euro, the dollar stood at $1.1926, close to its weakest in more than two months.

Sterling bought $1.3392, which is near its strongest level since Sept. 2. The pound held steady at 89.02 pence per euro.

The dollar was little changed at 104.32 yen.

Investors have rushed to riskier currencies and emerging-market assets in recent weeks after positive data on COVID-19 vaccine efficacy and signs of stability in U.S. politics, which has weighed broadly on the dollar.

Sentiment for the greenback took a hit after data on Wednesday showed weekly U.S. jobless claims rose more than expected and personal incomes fell.

Some economists said more job losses are likely as many U.S. states reinforce restrictions on businesses to curb a spread of corona-virus infections.

The dollar index against a basket of six other currencies was near the lowest in more than two months.

In Asia, trading in the dollar was subdued because U.S. financial markets are closed later on Thursday for the Thanksgiving holiday.

The onshore yuan rose to 6.5688 per dollar, resuming its advance toward a 29-month high set last week.

The Australian dollar traded near its highest since September, supported by improving risk appetite and strong Chinese demand for the commodities that Australia exports.

The New Zealand dollar traded near its strongest level in more than two years.

Dollar Down Over U.S. Election Clarity, More Positive COVID-19 Vaccine News

Dollar Down Over U.S. Election Clarity, More Positive COVID-19 Vaccine News

Investing.com – The dollar was down on Tuesday morning in Asia, with riskier currencies boosted by the news that U.S. President-elect Joe Biden is set to nominate Janet Yellen as the U.S. Secretary of the Treasury.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.03% to 92.487 by 10:02 PM ET (2:02 AM GMT). The dollar saw its lowest level since Sep. 1 overnight, as clarity from November’s U.S. presidential election begins to emerge.

However, analysts warned of a potential fresh downturn for the dollar should a conclusive break on the dollar index below support at around 92 occur.

Yellen, a former Federal Reserve Chairman, will be the latest nomination to the Biden cabinet. Already hinting at how she will tackle her role, she called for increased government spending to boost the COVID-19-ravaged U.S. economy. She has also often cited growing U.S. economic inequality as a threat to U.S. values and the country’s future.

Some investors welcomed the news.

“One thing is for sure, and that is there are unlikely to be as many Fed-Treasury spats … those Fed lending facilities for municipal funding, the corporate bond market and Main Street will be coming back quickly after the December 31 expiration date,” MUFG Union Bank chief financial economist Chris Rupkey told Reuters.

Rupkey was referring to incumbent Treasury Secretary Steven Mnuchin’s shock decision during the previous week to let some Fed lending programs expire at the end of the year. The decision sparked a feud with the Fed, led by incumbent Chairman Jerome Powell, who argued that the programs were vital in supporting the economy.

Incumbent U.S. President Donald Trump’s go-ahead to General Services Administration head Emily Murphy to proceed with assisting the Biden administration's transition to government also increased risk appetite as the first steps towards acknowledging the election results. However, Trump is still planning to continue his legal challenges over the same results.

On the COVID-19 front, AstraZeneca (LON:AZN) in conjunction with the University of Oxford, is the latest company to report positive news for a vaccine candidate. The candidate, AZD122, met its primary endpoint in clinical trials that took place in the U.K and Brazil, the company said on Monday. Preparations are now underway to submit the data to authorities globally for conditional or early approvals.

The USD/JPY pair inched up 0.02% to 104.56 as Japanese markets reopened after national holiday on Monday. The safe-haven yen is slowing reversing a slip of around 0.6% seen during the previous session.

Both Antipodean risk currencies benefitted from the increased risk appetite. The AUD/USD pair was up 0.25% to 0.7304 and the NZD/USD pair gained 0.65% to 0.6966.

The USD/CNY pair edged down 0.11% to 6.5777.

The GBP/USD pair inched up 0.05% to 1.3330. The pound was staying close to a near 12-week high against the dollar thanks to investor bets that the U.K. and the European Union will finally seal a Brexit trade deal soon. Negotiations between the two parties continue this week, racing to beat the end-of-year deadline for a deal.

Dollar Down, With COVID-19 Worries Overshadowing Prospect of Vaccine

Investing.com – The dollar was down on Monday morning in Asia, with optimism over a potential early rollout of COVID-19 vaccines offset by global economic restrictions to curb the spread of the virus.

The U.S. Dollar Index, which tracks the greenback against a basket of other currencies slipped 0.34% to 103.145 by 12:12 AM ET (4:12 AM GMT).

The FDA is looking to grant approval in mid-December for distribution of BNT162b2, the vaccine candidate produced by Pfizer Inc (NYSE:PFE) and German partner BioNTech (F:22UAy), chief scientific adviser for “Operation Warp Speed” Moncef Slaoui said. The first people in the U.S. could be inoculated a day after the approval.

The U.K. could also grant regulatory approval to BNT162b2 this week.

However, millions of Americans are expected to flout warnings to stay home for the upcoming Thanksgiving holiday, raising fears that the mass movement could increase the number of second wave cases in the country exponentially. Across the Atlantic, Germany, dealing with its own second wave, could see its current lockdown extended until mid-December.

The lack of consensus in the U.S. Congress concerning a deal on the latest stimulus measures has also led to speculations that the Federal Reserve could ease monetary policy even further. The spat between the Fed and the Treasury Department over the termination of some emergency lending programs during the previous week also fed this speculation.

The minutes of the Fed’s last policy meeting, to be released on Wednesday, will now be scrutinized for confirmation that Fed policymakers discussed adding to the central bank’s asset-buying plans.

“The minutes should help gauge whether our call for a lengthening of the maturity mix as soon as the December meeting remains on track,” TD Securities analysts said in a note.

The AUD/USD pair lost 0.59% to 0.5763 and the NZD/USD pair X X% to X

The USD/CNY pair X 0.05% to 7.0983 and the GBP/USD pair gained 0.13% to 1.1656

The USD/JPY pair was down 0.6% to 110.14. Japanese markets are closed for a holiday, resulting in sparse liquidity and investor reluctance to test major chart barriers on several dollar pairs.

Meanwhile, the euro edged up against the dollar, but continues a struggle to break above the $1.993 resistance level that it also failed to breach during the previous week.

However, some investors remain bullish on the single currency’s longer-term outlook.

“We think that the exchange rate will rise further over the next few years against a backdrop of lower euro-zone stability risks; an increased real yield gap between the euro-zone and the U.S.; and a continued recovery in the global economy,” Capital Economics analysts said in a note.

The note also raised its forecasts for the euro, now seeing it at $1.2500 by the end of 2021 and $1.3000 at the close of 2022, against the previous $1.2000 and $1.2500 respectively.