Gold Price Forecast: Dovish FOMC Could Underpin Bullion Ahead Of NFP

Gold Chart

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”.

Covid cases

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

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.

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