GOLD, INFLATION BETS, XAU/USD – KEY POINTS
- The XAU/USD poised for a move higher as the federal reserve QE expands further
- Shifting U.S political tensions pose risk for gold’s key drivers
- Treasury Federal Reserve discourse over the CARES funding bolsters gold
XAU/USD FUNDAMENTAL OUTLOOK- BULLISH
The prices of gold dropped for a 2nd consecutive week as traders further re-evaluated their outlook on the global markets. The fundamental macro drivers in the economy continue to shift rapidly. Gold is down more than 4.5% from the 1965.55 monthly highs set on 9th November despite the most recent decline, the XAU/USD remains more than 20% higher year to date. Also, the latest discourse between the Treasury and the Federal Reserve injected the risk-off bidding on the precious metal to end this week, nudging the prices higher.
Steven Mnuchin, the Treasury Secretary, in the letter sent to the Federal Reserve requested $430 billion in unspent CARES Act funds to be refunded from some of the emergency lending facilities that will be expiring by the end of 2020. The letter in question confused, leading to a response from the Fed underpinning the necessity for the facilities to continue as the backstop. On the other hand, gold reacted to an uncertainty, rising over the new 1870 level.
Gold Hourly Chart
Gold’s most recent bullish sentiment has flown higher in 2020 with the inflation hedge poised to largely benefit the investor’s portfolios. Traders keyed in on different bullish drivers, although one major cause stands out, the exceptional monetary stimulus. Faced with different economic consequences in 2020, central banks across the globe took a decision action via the monetary policy tools, especially quantitative easing. The Fed’s balance sheet continues to expand as the efforts continue.
Fed Balance Sheet, Gold, TIPS Bond ETF
That said, economists and investors forecast a setting that favors rising inflationary pressures. At this point, inflation seems to have failed to showcase itself via the current data in a logical manner. However, market expectations still seem poised to an uptrend, although to a less extent. The iShares TIPS bond ETF that tracks the inflation-protected securities of the United States has risen along with gold for the better part of 2020. The current political tensions in the US seem poised to bring less fiscal stimulus as the projected president-elect, Joe Biden will most likely face a challenge from the Republican-controlled senate on any substantial stimulus measure. Also, inflationary pressures seem less likely as Saudi Aramco Employs Financial Institutions for a Multi-Tranche Bond Deal.
Considering all things, it’s clear that the economic outlook is still the subject of an ongoing coronavirus pandemic. Although the approval of a vaccine seems imminent, distribution will likely take more time. As it is today, the worsening covid-19 situation leaves lots of uncertainty for traders to mull over. Technically, the Federal Reserve continues to support the economy of the United States through various monetary efforts.