US fiscal negotiations should be positive for gold, while the yellow metal may consolidate recent gains in the near-term. All in all, gold is still well supported in the longer-term by low yields, according to HSBC precious metals analysts.
“It is clear that the FOMC continues to view the economic outlook as extraordinarily uncertain, and that the economy’s path will depend heavily on how the COVID-19 pandemic evolves.Ongoing monetary accommodation from the Fed and the extraordinarily uncertain economic outlook can buoy up gold.”
“The Fed said it would extend USD liquidity swap lines for nine central banks through 31 March 2021 to serve as backstop for markets and help facilitate planning by other central banks. The Fed also has standing US dollar liquidity swap lines with the BoC, the BoE, the BoJ, the ECB, and the SNB. To an extent, this helps assure the world of adequate USD supply, and reduce financial stress and uncertainty. This should be gold negative.”
“Gold is benefitting from the uncertainty arising from the wide disagreement between Republicans and Democrats on the make-up of the fiscal stimulus but also from the expectations that a fiscal stimulus agreement will be reached. That said, gold may be consolidating some recent gains in the near-term, especially if a fresh fiscal stimulus proves USD positive, from a cyclical perspective, instead of being USD negative amid fewer ‘safe-haven’ bids.”
“Low or negative real interest rates are key to propelling gold higher. When US real yields are low or even negative, investors have no opportunity cost in owning gold. Besides, negative real US yields are likely an indicator of financial or economic stress, probably boosting ‘safe haven’ demand for gold. Furthermore, when US real yields turn negative, it may be negative for the USD, supporting gold in USD terms. Gold is still well supported in the longer-term by low yields.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.