The price of gold maintained an advance as investors weighed on expectations for the path of the Federal Reserve’s monetary policy tightening after new data indicated some weakness in the US economy. Yesterday, bullion prices cut six consecutive days of declines with the decline of the dollar. The price of gold XAU/USD moved towards the level of 1754 dollars an ounce, after prices plunged towards the support level of 1728 dollars an ounce at the beginning of the week’s trading.

The rebound came as investors await the annual meeting of global central bankers in Jackson Hole later this week and Federal Reserve Chairman Jerome Powell’s speech on Friday. Commenting on this, Goldman Sachs chief economist Jan Hatzius said he expected Powell to make the case for a slower rate hike. However, Minneapolis Fed President Neil Kashkari said it was “very clear” that the US central bank should tighten monetary policy again to control inflation.

Investors are assessing the strength of the Fed to continue raising interest rates in the face of increased risks to growth. Economic activity has weakened from the United States to Europe and Asia, fueling fears that price hikes and the war in Ukraine will push the world into recession. While bullion has stabilized ahead of the Jackson Hole seminar, Avtar Sandow, Senior Director of Commodities at Philip Nova, said, “The US dollar index remains at multi-year highs affecting its weight not only on gold prices but also on other currencies.”

Stock Futures are Lower

Today, Asian stock index and US stock futures are lower as investors assess the potential pace of further Fed monetary tightening and growing signs of an economic slowdown. The region-wide stock market was down about 0.5%, led by declines in China and Hong Kong, as shares of Logan Group Co. A volatile stock price once again highlights the real estate crisis affecting the Chinese economy.

The recession was fueled by broader risk aversion which saw declines in the S&P 500, Nasdaq 100 and European futures contracts. Risk-sensitive currencies such as those in Australia and New Zealand declined. The 10-year Treasury yield remained above 3%. The latest data has shown weak economic activity from the US to Europe and Asia, underscoring the delicate task the Fed faces in raising interest rates to bring down high inflation without triggering a recession. In general, investors will flock to Federal Reserve Chairman Jerome Powell’s speech at Jackson Hole on Friday to see how tough the US central bank is in the face of mounting economic challenges. The global recovery in stocks from the June low was halted before the much-anticipated event.

Today’s XAU/USD Gold Price Forecast:

• Despite the recent rebound, the XAU/USD gold price is still within the bearish trend.
• A strong reversal of the trend will not occur without the gold price moving towards the $1800 psychological resistance again.
• According to the performance on the daily chart below, I see that the price of gold may enter into buying levels from the support levels of 1725 and 1700 dollars, respectively.
• The price of gold may remain under pressure until the reaction, which will be mentioned in the Jackson Hole symposium, which is organized by the US Central Bank.

The price of gold today will be affected by the level of the US dollar and the extent to which investors take risks or not, as well as the reaction from the announcement of US durable goods orders and pending US home sales.

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So far this week, the US dollar has lost 0.32 percent against a bundle of its main competitors, falling for the second consecutive week.

Last week, US President, Donald Trump confirmed that he is infected with the coronavirus. Despite the concerns regarding the health of the president, Trump was finally discharged from the hospital, returning to the oval office this week. According to his doctor, the president has had no symptoms for more than 24 hours, while being fever-free for more than 4 days.

Many criticized Trump’s late behavior, given his tendency to underplay the virus. In any case, he seems to be doing well and took the opportunity to announce his decision to withdraw from the stimulus talks with the Democratic party, promising to pass a bill after the November elections.

“I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major stimulus bill that focuses on hardworking Americans and small business,” he posted on his Twitter account.

This caused unease across the US stock markets, which closed in the negative territory at the end of Tuesday’s session.

Afterward, he said on his Twitter account that he is willing to sign a stand-alone bill for stimulus checks. He also called the Democrats to approve a 25 billion dollars stimulus for the airline sector, as well as a paycheck protection program for small businesses that is worth 135 billion dollars.

Trump’s latest announcements relieved investors, making US stocks recover from the previous session’s losses.

The United States continues dealing with the Covid-19 sanitary crisis, which so far has killed 216,784 Americans and has infected 7,776,224. The United States leads the world in the number of infections, followed by Brazil, India, Russia, and Colombia. Cases are currently surging in 39 states, as states like Wisconsin have doubled its number of reported cases in the last month, all while Trump’s latest declarations about the issue keep alarming the medical community.

This week the markets received a few relevant pieces of information about the state of the US economy. On Monday, Markit economics released the Services PMI for September, which stood at 54.6, remaining unchanged from the previous month’s figure and signaling an expansion of the sector. The composite PMI figure signaled a slightly lower expansion of the business sector, standing at 54.3 in September, below August’s 54.4 and lower than what the analysts’ expected.  According to the Institute for Supply Management, the services PMI stood at 57.8, improving from August’s 56.9 and over the analysts’ expectations, who foresaw it to be at 56.3.

On Tuesday, the Bureau of Economic Analysis reported a 67.1 billion dollars deficit in the trade balance, after being at -63.4 billion in the previous month, and higher than the analysts’ expectations, who foresaw it to be at -66.1 billion. The Federal Reserve Chair, Jerome Powell called for additional fiscal stimulus, saying that it’s preferable to do too much than too little and claiming that economic recovery will be stronger and faster if monetary policy and fiscal policy “continue to work side by side”.

On Wednesday, the Federal Reserve released the FOMC minutes. In the minutes, the bank’s monetary policy committee stated that they are not willing to raise the interest rates until the economy reaches full employment and inflation reaches the bank’s 2 percent target. The Federal Reserve officials also expressed their concerns about the threat that the lack of help from the Congress poses for economic recovery.

House of Representatives agrees to President Trump’s proposal to increase aid to Americans; US Dollar Index falls by 0.34%; US economic data improves.

The US House of Representatives decided to back President Trump’s proposal to give additional stimulus payments to Americans in need, which has been a recent point of contention between both parties. Now the decision is in the hands of the Republican-controlled Senate, which risks losing its majority in the upcoming Georgia Senate run-off elections.

“To reject this would be in denial of the economic challenges that people are facing and it would deny them, again, the relief they need,” said Speaker of the House Nancy Pelosi.

Next week, Georgians will decide whether they prefer Republicans Kelly Loeffler and David Perdue to hold the state’s Senate seats, or instead support Democrats Raphael Warnock and Jon Ossoff, which would give the Democratic Party control of the House, Senate and presidency for the first time since 2011.

The race is very close, though betting for a Republican win seems safer at the moment. President Trump is set to campaign on the eve of the election.

If Senate Majority Leader Mitch McConnell chooses to hold a vote on the stimulus bill, he risks not getting enough votes to provide additional stimulus, putting at risk the Republican campaign in Georgia. It’s also a big dilemma for the party, which usually advocates for fiscal conservatism, especially since the current situation requires flexibility.

Until now, McConnell has not commented on the House of Representative’s decision, though an ongoing attempt to force a vote by Vermont Senator Bernie Sanders could be successful and force him and his colleagues to take a position.

The coronavirus crisis, even amid the current vaccination campaign, continues advancing in the United States. So far, 19,781,718 cases have been reported, as well as a death toll of 343,182, making the United States the most affected country in the world. Nearly 2 million Americans have already been vaccinated, below the government’s goal to vaccinate 20 million before the end of the year.

Economic Calendar

So far this week, no relevant data about the state of the US economy have been released, mainly due to the end of the year holidays.

Last week, the annualized gross domestic product for the third quarter was released at 33.4 percent, after being at 33.1 percent in the previous reading. It’s a significant improvement from last quarter’s figure, which stood at -31.4 percent.

The US Census Bureau reported that durable good orders rose by 0.9 percent, higher than expected, though lower than October’s 1.8 percent surge. Non-defense capital goods orders gained 0.4 percent, lower than expected and below October’s 1.6 percent.

Dollar Languishes

The US Dollar Index, which measures the greenback’s performance against a bundle of its main competitors, fell by 0.34 percent, relinquishing the previous week’s gains.

The House of Representative’s decision increased uncertainty regarding the future of the Republican-controlled Senate, now that the Georgia run-offs are approaching. The fact that the US is expanding its deficit strengthens the case for a continuing dollar depreciation.

“We see depreciation in the dollar continuing into 2021,” said a team of strategists at Goldman Sachs. “Liquidity dynamics and virus news flow may influence the timing of dollar weakness, but not necessarily the medium-term downtrend.”

The dollar has been losing steam over the last couple of months. So far this month, the greenback has dropped by 2 percent, posting losses for the second consecutive month as it fell by 2.31 percent in November.

US Economic Data Improves

Since our last report, US economic data has gotten slightly better.

The quarterly gross domestic product figure was recently revised up, higher than expected at 33.4 percent, according to data released by the Department of Commerce. It seems that consumer spending led the recovery in the third quarter, though there are already signs of it cooling off as retail sales declined in October and November.

Consumer Price Index data remained essentially unchanged since our last report, signaling an improvement in the monetary realm. In the same way, unemployment data signals an improvement in the labor markets.

Upcoming Events

This week is New Year’s eve, so not many relevant data about the state of the US economy is expected to be released.

• On Tuesday, October’s S&P/Case-Shiller Home Price Indices will be released.

• Pending home sales data for November will be published on Wednesday.

• Jobless claims data will be released on Thursday by the US Department of Labor.

ECB disavows any fiscal tightening; EUR loses ground against USD; Eurozone inflation data worsen.

The European Central Bank recently released its monetary policy meeting minutes, showing that the bank’s policymakers supported the decision to continue with an accommodative monetary policy stance until March 2022.

The committee also expressed concerns regarding the future of the Eurozone economy, as they expect the economy to return to pre-crisis levels by the middle of 2022.

European Central Bank President Christine Lagarde recently warned against stopping stimulus measures now that economic recovery is in sight.

“Any kind of tightening at the moment would be very unwarranted,” she commented, adding that doing so could lead to “very serious risks”.

The Eurozone continues to struggle with inflation and the effects that exchange rates are having on it. The recent appreciation of the euro is a matter of concern for policymakers, since it is making exports more expensive and hurting local producers.

“It was pointed out that the nominal effective exchange rate currently stood at an all-time high and that the recent appreciation could contribute significantly to the subdued inflation outlook,” stated the ECB Monetary Policy Committee in its minutes.

The Eurozone economy is expected to rebound by 5.3% this year, as many expect the economy to return to normalcy now that a vaccination campaign is underway.

The ECB Monetary Policy Committee is expected to meet next Thursday.

Economic Calendar

This week, the markets learned some relevant information about the state of the European economy. On Wednesday, Eurostat reported that industrial production stood at 2.5%, against October’s 2.3% and expectations of 0.2%. In yearly terms, it fell by 0.6%, higher than expectations of 3.3% and the previous month’s 3.5% drop.

Euro Loses Ground Against the Dollar

So far this week, the euro has dropped by 0.63%, breaking a two-week gaining streak.

Many link this sudden weakness of the euro with the recent strength of the US dollar, as the markets expect President-elect Joe Biden to announce a very ambitious fiscal stimulus package. Those expectations made traders rush from bonds to stocks and the dollar.

“With labor really struggling, there’s an argument that we could push for a higher stimulus number,” commented an analyst at OANDA. “In the end, markets are anticipating that we’re going to see more stimulus than what is expected in Biden’s first 100 days and that’s why we’re seeing the dollar holding up.”

As we already mentioned, European policymakers have been very concerned regarding the recent appreciation of the euro, as it poses a problem for exporters. Many speculate that this opens the doors for a Forex intervention, though it’s not clear if such a step is likely at this point.

Eurozone Inflation Data Worsen

Since our last report, inflation data have worsened. In yearly terms, the Consumer Price Index fell by 0.3%, higher than expectations of -0.2%. In monthly terms, the Consumer Price Index remained in line with expectations at -0.3%.

Inflation remains too low, taking into account that the European Central Bank aims for a 2% inflation level.

The unemployment rate has improved at 8.3% according to the last reading, and better than expectations of 8.5%.

Gross domestic product data have remained unchanged until now.

Upcoming Events