Gold rises as economic uncertainty prevails, dollar softens

Gold prices gained on Friday buoyed by a weaker dollar and lingering concerns over an economic recovery from the damage inflicted by the coronavirus pandemic that were underscored by elevated weekly U.S. jobless claims data.

Spot gold climbed 0.6% to $1,953.80 per ounce and was on track for a second straight week of gains, rising 0.7% so far. U.S. gold futures were up 0.7% at $1,963.60 per ounce.

Gold is being propped up by the weaker dollar, but prices are likely to remain “in a lateral range between $1860 and $2000,” said ActivTrades chief analyst Carlo Alberto De Casa. “The scenario remains unchanged with the main trend still positive.”

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Kitco/Michael McCrae
Gold price is flashing a ‘very good sign’ – Peter Hug

It’s a “very good sign” that gold has consolidated between a support level of $1,925 oz and $1,975 an ounce for the better part of two weeks, said Peter Hug, head of Kitco’s precious metal division.

“The fact that people are not selling into a market that isn’t as frenetic as it was a month or six weeks ago indicates to me that this market is setting up for the next leg higher,” Hug told Kitco News on Wednesday.

Yesterday, the Federal Reserve announced they were keeping interest rates at current levels through 2023 as they look for economic growth to pick up. The Fed Chairman Jerome Powell gave a press conference regarding the central bank’s decision.

Hug said Fed officials seemed nervous about the economic recovery “…and the legs this economy is going to have”.

“[About] three Fed meetings ago they indicated they would hold rates at pretty much zero through the end of 2021. They’ve extended that by an additional year. Some analysts are expecting that they will keep rates at zero right through 2024.”

Hug said that with the Fed “…being a bit more accommodative on inflation indicates to me, it’s a very positive environment for hard assets in general.”

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Fox Business/Jonathan Garber
Gold prices set to soar as Fed signals years of low interest rates

Gold prices are set to spring higher after more than a month of moving sideways, according to one analyst.

Drivers include a positive technical backdrop and the likelihood of sustained low interest rates in the world’s largest economies that may prompt investors to seek better returns in other “safe haven” investments.

Gold has “worked off the momentum, sentiment and positioning extremes seen at the peak and looks set to resume its uptrend” wrote Laurence Balanco of Hong Kong-based capital markets and investment group CLSA Ltd.

Gold topped out at $2,051 an ounce on Aug. 6 and four trading days later plunged more than $100 to around $1,935. The precious metal has spent the last five weeks trading in a tight range between $1,900 and $2,000.

More recently, price action has managed to break the downtrend off the August high while also holding above the 50-day moving average.

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CNBC/Jeff Cox
The market isn’t convinced the Federal Reserve can achieve its inflation objective

For the past decade or so, the Federal Reserve has been quite effective in helping to create inflation, just not the kind that it normally targets.

The Fed’s perpetually easy monetary policy, consisting of historically low short-term interest rates and trillions of dollars in bond buying, has coincided with a huge swell in asset prices, stocks in particular.

What it has not driven is the kind of inflation central bank officials like to see – higher wage pressures, for instance, that help improve the standard of living as well as signal a vibrant economy not caught in the slow-growth trend that has persisted since the financial crisis.

The Fed is hoping to change that with a policy that it wheeled out in late August and codified Wednesday.

Instead of using interest rate increases to head off inflation before it hits, the Fed now will wait to hike until it sees inflation running persistently above the 2% target for an indeterminant period. While the move to “average inflation targeting” is in a respect historic for the Fed, market participants remain largely skeptical that the central bank can achieve its newly defined goal.

“Inflation has been an enigma for the Fed for a decade,” said Art Hogan, chief market strategist at National Holdings. “Clearly, there are certainly risks of creating asset bubbles with easy monetary policy. There doesn’t seem to be much risk of actual constructive inflation.”

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