Diary - Analysis
Gold at 4h time frame is forming an W pattern and an inverted HS diary.
Now I think we will go to a final target 1950.
Monetary and Fiscal Stimulus
Monetary stimulus (from the Fed) is not expected to let up this year. As one example, Chicago Fed President Charles Evans said, “Economic agents should be prepared for… an expansion of our balance sheet…”
And fiscal stimulus (from congress and the president) is likely to explode in 2021. The interesting thing about this type of stimulus is that it bypasses the banks and puts funds directly into the hands of people who will have a propensity to spend it.
President-elect Joe Biden has explicitly stated that his “first priority” when he takes office is a stimulus package. And with the return of Janet Yellen—now as Treasury Secretary—further stimulus will be supported. During her tenure as Fed Chair and in recent communications, the message is very clear: more fiscal stimulus is coming.
Fiscal stimulus amounts are not finalized as we write, but based on what has been said publicly so far, we should expect something in the range of at least $3 trillion in fiscal spending in 2021.
Monetary and fiscal stimulus is arguably one of the strongest catalysts for gold, not to mention the ramifications that can come from it. Of course if they don’t enact stimulus, or much less than expected, it would be a drag on the gold price. But that isn’t likely to happen, at least this year.
If stimulus efforts play out as expected, the gold price will increase…
Gold price will increase
Low Interest Rates
The Fed has signaled ultra-easy monetary conditions for at least the next year. Chicago Fed President Charles Evans said, “The Fed’s policy stance will have to be accommodative for quite a while… economic agents should be prepared for a period of very low interest rates.”
The “real” rate (10-year Treasury minus the CPI) is already negative in the US. And many analysts expect the spread between the nominal interest rate and inflation to widen if the economy begins to recover. In other words, even if nominal yields stay flat, the real yield would continue to fall if inflation picks up.
The relationship between gold and real yields is one of the most consistent predictors of the gold price.
Inflation-adjusted yields are likely to remain negative. If so, the gold price will increase…
gold price will increase
U.S. Dollar: Because gold is universally priced in U.S. dollars, they are usually inversely correlated. As such, a weak U.S. dollar is supportive of higher gold prices. Ongoing stimulus efforts will keep the USD under pressure—and given the amount of fiscal expenditures expected this year, the dollar is likely to fall, which will push the gold price up...
gold price will increase
If the virus is contained and the Fed and congress scale back on their stimulus efforts, the dollar would rise and gold would probably decrease...
gold price will decrease
Inflation Threat: Since the Fed has expressly stated it is comfortable with inflation rates exceeding 2%, a higher CPI is a distinct possibility. Consider what else is transpiring that could lead to higher inflation rates this year…
Debts and deficits have reached record territory, which historical studies have shown lead to higher rates of inflation. The federal debt ended 2020 at 135.6% of GDP, a level unmatched in modern history. And the federal deficit is now $3.2 trillion, more than twice the level of the Great Recession and a level not seen in U.S. history.
Meanwhile, the last reading of the Purchasing Managers Index (PMI) in 2020 showed that while new orders dropped, input prices rose. In the case of the services PMI, input prices jumped to the highest on record for the second straight month, while input prices in the manufacturing survey hit the highest level since mid-2018.
Commodity prices have also jumped. Many are up double-digits from a year ago, with lumber prices up triple digits.
Meanwhile, St. Louis Fed President James Bullard said his bank has gotten reports of supply constraints of various kinds that are “intense” and led to a big increase in prices. “The quiescence of inflation that has characterized the last decade may not be a good guide for what’s going to happen in 2021, where I would expect possibly higher inflation than we’re used to.”
And Kansas City Federal Reserve President Esther George, one of the “hawks” at the central bank, said she is “worried inflation is brewing and could surprise to the upside.”
If rising consumer prices visit us in 2021, investors are bound to look for inflation hedges, gold being an obvious choice and one that will push the price up...
gold price will increase
Gold at 4h time frame is forming an W pattern and an inverted HS diary.
Now I think we will go to a final target 1950.
Monetary and Fiscal Stimulus
Monetary stimulus (from the Fed) is not expected to let up this year. As one example, Chicago Fed President Charles Evans said, “Economic agents should be prepared for… an expansion of our balance sheet…”
And fiscal stimulus (from congress and the president) is likely to explode in 2021. The interesting thing about this type of stimulus is that it bypasses the banks and puts funds directly into the hands of people who will have a propensity to spend it.
President-elect Joe Biden has explicitly stated that his “first priority” when he takes office is a stimulus package. And with the return of Janet Yellen—now as Treasury Secretary—further stimulus will be supported. During her tenure as Fed Chair and in recent communications, the message is very clear: more fiscal stimulus is coming.
Fiscal stimulus amounts are not finalized as we write, but based on what has been said publicly so far, we should expect something in the range of at least $3 trillion in fiscal spending in 2021.
Monetary and fiscal stimulus is arguably one of the strongest catalysts for gold, not to mention the ramifications that can come from it. Of course if they don’t enact stimulus, or much less than expected, it would be a drag on the gold price. But that isn’t likely to happen, at least this year.
If stimulus efforts play out as expected, the gold price will increase…
Gold price will increase
Low Interest Rates
The Fed has signaled ultra-easy monetary conditions for at least the next year. Chicago Fed President Charles Evans said, “The Fed’s policy stance will have to be accommodative for quite a while… economic agents should be prepared for a period of very low interest rates.”
The “real” rate (10-year Treasury minus the CPI) is already negative in the US. And many analysts expect the spread between the nominal interest rate and inflation to widen if the economy begins to recover. In other words, even if nominal yields stay flat, the real yield would continue to fall if inflation picks up.
The relationship between gold and real yields is one of the most consistent predictors of the gold price.
Inflation-adjusted yields are likely to remain negative. If so, the gold price will increase…
gold price will increase
U.S. Dollar: Because gold is universally priced in U.S. dollars, they are usually inversely correlated. As such, a weak U.S. dollar is supportive of higher gold prices. Ongoing stimulus efforts will keep the USD under pressure—and given the amount of fiscal expenditures expected this year, the dollar is likely to fall, which will push the gold price up...
gold price will increase
If the virus is contained and the Fed and congress scale back on their stimulus efforts, the dollar would rise and gold would probably decrease...
gold price will decrease
Inflation Threat: Since the Fed has expressly stated it is comfortable with inflation rates exceeding 2%, a higher CPI is a distinct possibility. Consider what else is transpiring that could lead to higher inflation rates this year…
Debts and deficits have reached record territory, which historical studies have shown lead to higher rates of inflation. The federal debt ended 2020 at 135.6% of GDP, a level unmatched in modern history. And the federal deficit is now $3.2 trillion, more than twice the level of the Great Recession and a level not seen in U.S. history.
Meanwhile, the last reading of the Purchasing Managers Index (PMI) in 2020 showed that while new orders dropped, input prices rose. In the case of the services PMI, input prices jumped to the highest on record for the second straight month, while input prices in the manufacturing survey hit the highest level since mid-2018.
Commodity prices have also jumped. Many are up double-digits from a year ago, with lumber prices up triple digits.
Meanwhile, St. Louis Fed President James Bullard said his bank has gotten reports of supply constraints of various kinds that are “intense” and led to a big increase in prices. “The quiescence of inflation that has characterized the last decade may not be a good guide for what’s going to happen in 2021, where I would expect possibly higher inflation than we’re used to.”
And Kansas City Federal Reserve President Esther George, one of the “hawks” at the central bank, said she is “worried inflation is brewing and could surprise to the upside.”
If rising consumer prices visit us in 2021, investors are bound to look for inflation hedges, gold being an obvious choice and one that will push the price up...
gold price will increase