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 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.

Wall Street jumps on stimulus hopes, hints of Trump's return to White House...

(Reuters) - Wall Street's main indexes jumped on Monday, recovering from a sharp fall in the previous session as hints President Donald Trump could return to the White House and hopes of a new fiscal stimulus bill lifted sentiment.

Although Trump's medical condition remained unclear as he began a fourth day at the military hospital where he is being treated for COVID-19, his doctors have said he could be discharged as soon as Monday.
Ten of the 11 major S&P indexes were up, with energy (SPNY), the worst performing sector this year, rising 1.7%. Materials (SPLRCM) and financials (SPSY) were also among the biggest gainers in morning trading.
Shares of Regeneron Pharmaceuticals Inc (O:REGN) jumped 6.1% after Trump's physician said he had been treated with an intravenous dose of Regeneron's dual antibody treatment. The wider healthcare index (SPXHC) added 1.7%.