Gold futures prices rebounded on Friday, recovering from yesterday’s steep decline, as the U.S. Dollar weakened and the U.S. Federal Reserve signaled a prolonged low interest rate strategy.
At 15:57 GMT, December Comex gold futures are trading 1977.30, up $44.70 or +2.31%. \
Fed Chair Powell said on Thursday the central bank would adopt an average inflation target, meaning rates are likely to stay low even if inflation rises a bit in the future.
On the other hand, global central banks and governments have pumped massive stimulus into the market to prop up their coronavirus damaged economies, helping gold gain over 28% this year.
The lower interest rate environment should be supportive for gold prices, but the price action suggests investors want more short-term stimulus that would likely drive prices to new all-time highs.
The Fed’s strategy may work, but it could take a long time to accomplish. First of all, inflation has to reach 2% and it hasn’t been at that level since 2012. Then it is going to be allowed to exist above this level, while being closely by policymakers.
It seems like a lot of work even for bullish gold traders.
Meanwhile, some gold bulls are still waiting for Congress to agree on the numbers for the next stimulus package.
Fiscal stimulus packages tend to have to an immediate effect on gold prices, while central bank monetary stimulus has a longer-term effect.
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