Gold futures close moderately higher all on dollar weakness

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Interesting action in gold pricing today with a divergence of price between spot and futures pricing. As of 4:25 PM EST gold futures basis, the most active February 2020 Comex contract is currently up $6.70, which is a net gain of 0.34% and fixed at $1877. Dollar weakness today is the primary contributor to gains in gold futures. Currently, the dollar index is down 0.29 points which is a decline of 0.32%, and fixed at 90.255. That means that only an extremely fractional portion of today’s price gain in gold futures is attributed to buying with the remaining 98% a direct result of dollar weakness.

The same cannot be said for spot gold pricing. According to the KGX (Kitco Gold Index), spot gold is currently fixed at $1871.90 after factoring in today’s gains of $12.40. However, dollar weakness accounted for $6.50, with the remaining gains of $5.90 directly attributable to traders bidding the precious yellow metal higher.

This means that the current spread between futures and spot gold is approximately $5.10 and the differential yesterday was over $11. In both futures and spot pricing dollar weakness was a major contributor to gains, however, gains due to traders bidding gold futures pricing higher were marginal at best.

Today the U.S. Labor Department released its jobs report for the week ending on December 19. The net result was that jobless claims declined by 89,000 taking the total number of Americans on unemployment benefits to 803,000. This is a three-week low and came in well under economic forecasts. A poll by MarketWatch indicated that economists projected that the initial jobless claim would come in at 875,000 individuals.

The lowest number of Americans obtaining unemployment benefits occurred at the beginning of November and came in at 711,000. However additional furloughs and layoffs as the pandemic infection rates spiked in the United States bringing the number of individuals higher by approximately 100,000.

However, there were additional 397,511 applications filed for benefits last week through a federal relief program which puts the total number of new claims at 1.27 million. These numbers indicate the great need for an extension of the additional benefits which were set to expire the day after Christmas. This new bill which was passed yesterday has extended that timeline into the first quarter of 2021.

As more individuals become vaccinated and the country slowly returns to a new normal, we would expect the number of jobless individuals to decline and that of course would have a positive impact on the current economic contraction.

This brings us to the real issue which is the total expenditures through the Treasury Department which are now close to $4 trillion when you combine the “Cares act” and the recent financial aid package costing $908 billion. President-elect Joe Biden also acknowledged that one of his first actions after being sworn in as president will be to allocate more aid. The combination of the cost of the two financial aid bills this year and the additional aid packages that will occur during the next administration will mean that our budget deficit will swell to the highest level in history. This is why many analysts including myself believe that the dollar will continue to lose value as capital expenditures dilute the real value of the dollar. It is also a primary factor why we believe we will see gold trade to a new record high next year.

Wishing you as always, good trading and good health,

Gary S. Wagner - Executive Producer