Price of Gold Fundamental Daily Forecast – Bull Market Driven by Stimulus, Low Rates

James Hyerczyk

Gold futures are trading sharply higher for a third session this week on Thursday, putting it in a position to challenge the January 8 top at $1619.20. This top was the result of a spike to the upside when tensions between the United States and Iran escalated in early January.

At 11:58 GMT, April Comex gold futures are trading $1619.7, up $7.90 or +0.49%.

Gold is being underpinned by concerns the coronavirus is spreading throughout Asia which could threaten the global economy. Furthermore, a jump in the unemployment rate in Australia likely means the Reserve Bank of Australia will have to cut its benchmark interest rate sooner than expected. Additionally, China announced more stimulus measures although this was priced into the market on Monday.

On Wednesday, the Fed threw a little more gasoline on the fire when the minutes from its January 28-29 monetary policy meeting came across a little more dovish than expected. The Fed also warned about the economic impact of the coronavirus, however, conditions have worsened since the meeting so we have to assume policymakers have become more concerned about the outbreak.

Coronavirus:  Slowdown in China, New Concerns in South Korea

Even though new data shows the new coronavirus cases in China has slowed, a spike in new infections and a first death in South Korea intensified fears that the disease could spread more widely. Two deaths were recorded in Japan and research showed that the pathogen was more contagious than previously believed.

In Singapore, three new cases of the virus were confirmed in the city-state Wednesday, bringing the total number of infected to 84 – one of the highest tallies outside China.

These are not signs that the epidemic is slowing down.

Stimulus and Cheap Money Driving Prices Higher

We’ve said for years that gold is not a safe-haven asset, it’s an investment and we’re seeing more and more evidence of this as rates fall or are expected to decline all around the world, and gold prices rise. Gold investors are betting on rates falling below zero or turning negative. Then it will be worth more than paper assets.

On Thursday, China lowered its benchmark lending rate, in a widely expected move. On Tuesday, Singapore announced around $4.5 billion in financial packages to help contain the outbreak’s economic impact. The Bank of Indonesia cut interest rates and lowered its 2020 growth outlook.

Earlier in the week, New Zealand’s prime minister announced lower growth rates in 2020. Early Thursday, Australia announced that its January unemployment rate jumped higher than expectations, prompting investors to price in a near future rate cut. And this report didn’t even reflect the economic impact of the coronavirus. Imports and exports have been virtually shut down.

Daily Forecast

The fundamentals are bullish so any weakness we see will be attributed to profit-taking. The market will continue to go up as long as novice investors are willing to chase it higher. The professionals are looking for value, which is why we see two-sided trading. The most trading success comes from buying the dips and playing for the breakout.

This article was originally posted on FX Empire