U.S. Dollar and Federal Reserve Highly Supportive of Gold

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Today it was a combination of dollar weakness, and an extremely accommodative Federal Reserve that continued to support the current bullish market sentiment for gold. Dollar weakness began in the middle of March after reaching a high of 103. In the last four months the dollar has lost approximately 10% in value and is currently fixed at 93.245.

The dollar has been falling in stages with the most recent slide beginning at the end of June when the dollar was trading at approximately 97.50. In the month of July, the dollar fell from approximately 97.50 to its current value. This takes the U.S. dollar to a two year low.

The Federal Reserve concluded this month’s FOMC meeting which was followed as always by a press conference with Chairman Powell. In a un-unanimous decision the Federal Reserve voted to maintain the current level of interest rates at near zero, that until employment picks up they would keep rates near zero.

In the press conference Chairman Powell began by stating, “Our country continues to face a difficult and challenging time, as the pandemic is causing tremendous hardship here in the United States and around the world. People have lost loved ones. Many millions have lost their jobs. There is great uncertainty about the future. At the Federal Reserve, we are strongly committed to using our tools to do whatever we can—and for as long as it takes—to provide some relief and stability, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.”

Chairman Powell acknowledged that the pandemic has induced a “sharp decline in economic activity and a surge of job losses”. He cited data that indicates that “spending and production have plummeted in April, and the decline in real GDP in the current quarter is likely”.

Federal Reserve pledged to continue to buy at least $120 billion of U.S. treasuries and mortgage backed securities on a monthly basis. His statements underscored the severity of the coronavirus in the United States.

Coupled with a falling U.S. dollar we saw gold once trade to a new all-time record high. Spot or Forex gold is now a mere $30 from $2000 per ounce, as it is currently fixed at $1970.40. Gold futures basis the December Comex contract gained 1.15% and is currently fixed at $1986.50, after factoring in today’s gains of $22.60.

It is clear that until the United States is able to curtail the spread of the Covid-19 virus the economy cannot begin to stabilize let alone grow. As such we can expect the current bullish sentiment for gold to continue. This is not to say that we will not see periods in which gold pricing declines, however the overall trajectory of gold is and will continue to be higher.

Wishing you as always good trading and good health,

Gary S. Wagner - Executive Producer