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Gold takes breather after nine-day rally as Fed flags virus risk

‘Gold should continue to rise higher after the Fed’s promise to keep the stimulus coming,’ Edward Moya
Image: Chris Ratcliffe/Bloomberg

Gold paused after rallying for nine days to a record on a slight uptick in the dollar as investors weighed comments from the Federal Reserve on uncertainties over the economic recovery amid the coronavirus pandemic.

Bullion has been supported as the US central bank left interest rates near zero and vowed to use all its tools to drive the recovery from the downturn that Chair Jerome Powell called the most severe “in our lifetime.” He sounded a dour tone, noting that more fallout from the outbreak still lies ahead. US deaths surpassed 150,000, the highest official toll in the world.

Gold has soared almost 30% to a record this year as the pandemic drove demand for havens amid a weaker dollar and low interest rates. With more stimulus on the horizon, Goldman Sachs Group Inc. has said that bullion is the currency of last resort and forecasts a surge to $2,300 an ounce. Real yields on 10-year US Treasuries are sinking toward -1%.

“Gold should continue to rise higher after the Fed’s promise to keep the stimulus coming,” Edward Moya, senior market analyst at Oanda Corp., said in a note. “The Fed’s backstop is not going away, but if Congress botches the size and timing of the coronavirus relief bill, gold could consolidate before breaking beyond the $2,000 level.”

Another round of talks between the Trump administration and congressional Democrats Wednesday brought them no closer to a compromise on a virus-relief plan, as enhanced unemployment insurance for millions of out-of-work Americans runs out. In his remarks, Powell said supporting the recovery would need help from both monetary and fiscal policy.

Data due Thursday are forecast to show US gross domestic product plummeted an annualised 34.8% in the second quarter, the most in records dating back to the 1940s, after the spread of Covid-19 prompted Americans to stay home and states to order widespread lockdowns.

Spot gold was 0.6% lower at $1,959.69 an ounce at 7:29 a.m. in London, after hitting an all-time high of $1,981.27 on Tuesday. Gold futures were steady at $1,975.50 after peaking at $2,000 this week.

Spot silver fell 2% to $23.8425 an ounce, and is down for a third day. The Bloomberg Dollar Spot Index was 0.3% higher, rebounding from near the lowest in almost two years.

© 2020 Bloomberg

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