The financial world may be looking to get back to business now that the Biden Administration has taken office and Donald Trump has left without further fight. That being said, investors are likely to focus their attention on the ongoing viral pandemic as well as efforts to distribute a vaccine for the virus. In addition, hopes for a massive stimulus program are running high and could be a primary factor for any upside seen in equity markets this week.
The gold market is getting the week off to a slow start, uo less than $2.00 per ounce in early action Monday. Markets and investors will have plenty to digest this week, as the FOMC meeting concludes Wednesday followed by Chairman Powell’s press conference. The markets are also hopeful for passage this week of Biden’s $1.9 trillion stimulus package, the size of which has many republicans balking. There is also a significant amount of economic data due to be released this week which may provide further clues about the overall economy and Fed policy going forward.
Fed Chairman Powell’s press conference Wednesday afternoon has the potential to be market moving, although no major surprises are expected at this time. Powell is likely to tow the company line, emphasizing the need for rates to remain ultra-low and for central bank purchases to remain at current levels. If Powell stocks with the current game plan, the dollar could potentially decline further while gold could get a boost. On the other hand, however, is what could happen if Powell makes comments that are decidedly more hawkish than expected. Hawkish commentary from the leader of the Federal Reserve could have a major impact on the dollar index and could give the greenback a major boost following recent downside. Any upside in the currency has the potential to dampen demand for gold and other hard assets and could leave the metals complex on the defensive.
The gold market has had its ups and downs in recent months. The market is currently sitting in what may be viewed as neutral territory, with neither the bulls nor the bears having a major advantage. The $1900 level may be the next major target for the bulls on the upside, while the bears may target the $1800 area on the downside. Whichever way the market does break, a significant breakout could possibly be seen that may dictate price action for the months ahead. Against the current backdrop of the viral pandemic and corresponding monetary policies across the globe, it is challenging to imagine a situation in which the metals complex breaks down and heads lower.
The forecast for gold for the months ahead may largely depend on the Fed and its policies. If the dollar continues to weaken further, possibly reaching multi-year lows versus a basket of major currencies, it could keep the gold bulls highly encouraged and buying any dips. If the dollar index reverses course, however, the bulls may have lost a major buying catalyst and the bears could drive prices significantly lower from recent levels. The Fed’s policies and their effects on the dollar are likely to remain a major influence on gold prices for the foreseeable future.