Gold Retains Its Inverse Relationship to USD On Dovish Federal Reserve Guidance

GOLD KEY POINTS

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The gold price rebounds from $1933, the monthly high with the US Dollar appreciating against its major peers, and the gold might continue to show an inverse relationship with the US Dollar as the Fed vows to further increase its agency MBS and Treasury Securities.

GOLD FUNDAMENTAL FORECAST – NEUTRAL

The gold price seems to be stuck in last month range as US legislators work on passing another fiscal stimulus package round and the stalled talks in congress might continue dragging on the risk appetite with it heightening the risk of protracted recovery.

Trader confidence might continue to abate as the FOMC (Federal Open Market Committee) seems to be on the right track to retaining the wait and see approach with the next interest rate decision scheduled on 5th November, and it seems like Jerome Powell, the Chairman and Co. would respond on its recent tools in order to further support the economy of the US as many Federal Reserve officials indicated that the yield targets and caps will most likely offer only the modest benefits in today’s environment.

On the other hand, the Fed might continue adjusting their non-standard measures as Loretta Mester, the Cleveland Fed President, a 2020 voting member in the FOMC further insists that the committee will shift to long-term Treasuries in the same way it was done in the Great Recession. As a result, the dovish forward guidance might increase the gold appeal as an option to the Fiat currencies with the Federal Reserve balance sheet increasing for another week.

GOLD PRICE FORECAST

gold price

The latest updates have shown the Fed balance sheet growing from $7.075 trillion to $7.151 on October 7 and the dovish forward guidance might keep the gold price afloat.

A closer look ahead, John Williams, the New York Federal Reserve President and Randal Quarles, the Governor might strike the same tone as permanent members of the FOMC, who are also expected to speak in the next few days. A series of dovish comments might keep the trends in the market in the same place as the central bank plan to unveil explicit forward guidance based on the outcome as Australian Dollar Eyes China 3rd Quarter GDP Data, Earnings Surging Coronavirus Cases.

That said, the gold price might continue to show an inverse relationship with the USD as the Federal Reserve balance sheet approach the highs from June and the dovish comments from the FOMC authorities might keep gold, as it will help to restore traders confidence.

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