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Lawmakers pass the $1.9 Trillion Covid-19 relief bill

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Today the House Democrats passed their relief bill of nearly $2 trillion, encompassing every person and industry vastly affected by the Covid-19 pandemic. A few key things that will be included are a $1,400 check to all Americans making less than $80,000 a year and extending the jobless claims benefits to more people until September 6th.

“Help is on the way,” said Chuck Schumer today. The Senate Majority leader went on to say, “This is one of the most consequential pieces of legislation we have passed in decades, and you know what we can show America, that we can get things done to make their lives better, and we will continue to do that through the rest of this session. Help is on the way”.

Gold reacted timidly to this news, trading up on the day but only moderately. Currently, April Comex futures are trading up around half a percent or $8.10 on the day to close at $1,725 per ounce. This was only a mild reaction to the passing of the new stimulus bill that will likely be signed into law by President Biden by the end of this week shows that relief might be largely already factored into pricing. Nonetheless, gold has the real potential for a bounce higher from these prices.  

Whether or not gold pricing will continue to rise will really be contingent on three factors. As we mentioned above, the mild uptick in gold pricing occurred immediately following the announcement that the fiscal stimulus bill presented by President Biden had passed in the Senate by a vote of 50 to 49. The question becomes, has this been completely factored into current gold pricing? My current assessment is that it has only been partially factored into current pricing.

That takes us to the second factor, and that is whether the U.S. dollar will begin to weaken based upon the news that the government has just added an additional $2 trillion to the national debt. Currently, the dollar index is fixed at 91.77, after factoring in today’s decline of 0.21%. The fact that gold futures gained 0.47% indicates that today’s gain of $8.10 was the result of both dollar weakness and market participants bidding the precious metal higher.

Lastly is where yields will go to in U.S. Treasuries. Although yields backed off of the recent highs and are now just above 1.5%, it is certainly not in alignment with the current mandate of the Federal Reserve. Statements from Chairman Jerome Powell, as well as other voting Fed members, have stated that they plan to keep interest rates extremely low, fixing their Fed’s fund rates between 0 and ¼%. Additionally, they are willing to let inflation run hotter than their previous benchmark of 2% so that they could focus on their primary mandate of maximum employment. In addition to letting inflation run hot and maintaining an extremely low-interest rate, they continue to purchase assets to the tune of $120 billion per month.

How the three factors mentioned above shape market sentiment will be a huge determining factor on how high gold can trade if it continues to rally and a true bottom was formed.

Wishing you, as always, good trading and good health,

Gary S. Wagner - Executive Producer