In Asian trading on Friday, the dollar index continued to come under pressure and is now trading around 90.10; spot gold suddenly fell sharply in the short term, just below the $1860 / oz mark. Gold lost some support for safe-haven buying as strong U.S. economic data on Thursday boosted investors' expectations of a faster U. S. economic recovery, analysts said. However, a weaker dollar and the possibility of more stimulus in the US are expected to limit gold's decline.
Gold fell from a two-week high on Thursday as investors took profits after the previous session's rise, but the decline was limited by expectations of further stimulus and a weaker dollar. Spot gold closed Thursday at $1869.87 an ounce, down $1.88 or 0.1 per cent. In Asian trading on Friday, gold prices fell sharply again in the short term, reaching as low as $1859.75 an ounce.
Us economic data released on Thursday show that the US economy is slowly gaining some momentum. Expectations that the US economy will recover faster have undermined safe-haven buying in gold.
Initial claims for unemployment benefits fell by a seasonally adjusted 26000 to 900000 in the week on Jan. 16, according to data released by the Labor Department on Thursday. Economists in the survey expect the number of applications in the most recent week to be 910000.
Other US data released on Thursday showed that permits for home construction and future residential construction surged in December to levels not seen since 2006. Factory activity in the mid-Atlantic accelerated this month, with manufacturers reporting a surge in new orders.
Anujeet Sareen, global fixed income portfolio manager at Brandywine Global Investment Management, said: "there is a high level of optimism about economic growth across the asset market, which I think is appropriate."
Gold prices have risen recently as the dollar weakens and markets look forward to stimulus measures from the Biden government. However, after recent rapid gains, gold prices are under pressure from a technical correction.
Naeem Aslam, chief market analyst at AvaTrade, said that with the recent rise in prices, there will be a correction in gold prices.
The European Central Bank released its latest interest rate decision on Thursday: leave the three major interest rates unchanged, in line with market expectations. In addition, the ECB reiterated its very loose monetary policy position and maintained the time limit and size of its asset purchase programme.
European Central Bank President Christine Lagarde said at a press conference that the current novel coronavirus vaccination plan is an important milestone in Europe's recovery.
Aslam said that from the ECB meeting, it was clear that the central bank was not so worried about the economy, and investors concluded that the economic situation was improving, which undermined the momentum of gold's rise.
Gold continued to try to break through $1871.55 an ounce on Thursday, but gold faces solid resistance at that level, according to an article on the popular website Economies.com. However, as long as gold stays above $1850.80 an ounce, the bullish view will remain valid. Our next target for gold prices is $1888.30 an ounce.
Georgette Boele, a senior precious metals strategist at Dutch bank (ABN AMRO), adjusted her forecast for gold in a report released on Thursday, saying the price of gold had peaked.
She noted that the bullish environment for gold prices had "deteriorated sharply" over the past month. Boele said she thought the gold market would be in trouble this year as rising inflation would force the Fed to tighten monetary policy faster than investors expected.
At the same time, improved economic conditions will help push up nominal yields, which in turn will push up real interest rates, another big resistance to gold, Boele said.
In its latest forecast, ABN AMRO expects the average price of gold to be around $1771 an ounce this year, below the previous average of $1951.
I'm afraid the decline in gold prices will not last.
Analysts pointed out that although gold prices fell back from their highs in the short term, the decline is not expected to last, and expectations of more stimulus measures in the United States are expected to push gold prices to rebound in the future.
Biden was sworn in as president on Wednesday as markets focused on his proposed $1.9 trillion coronavirus stimulus package, which needs to be approved by a divided Congress.
Biden last week announced a $1.9 trillion stimulus package in which Americans will receive $1400 in cash, plus a $2000 bailout package passed by Congress in December 2020. Unemployment insurance will be increased to $400 a week from the current $300 and will be extended until September.
On January 21, local time, Biden announced a "wartime" anti-epidemic plan. The plans unveiled by Biden include stepping up vaccine distribution and testing, preparing for the reopening of schools and commercial activities, and popularizing the use of masks.
Biden said that the US response to the epidemic is a "wartime task" and is likely to enter the most difficult period ahead. The death toll of COVID-19 in the United States next month is likely to exceed 500000.
Rona O'Connell, an analyst at Stonex, said it remains to be seen whether the stimulus package will be passed through both houses of Congress as quickly as Biden expected. "this may be one of the reasons why gold prices have not risen sharply."
Chintan Karnani, chief market analyst at Insignia Consultants, said additional fiscal stimulus was expected to be announced soon, while more government spending would generate more debt, causing the dollar to weaken, boosting gold prices.
Phillip Streible, chief market strategist at Blue Line Futures, said: "many people are optimistic that Biden may make it a priority through more stimulus measures. People do believe that Biden and Yellen, the nominee for Treasury Secretary, will introduce more easing measures in the future. We are cautiously optimistic about gold. "
Jeffrey Sica, founder of Circle Squared Alternative Investments, said the possibility of more stimulus measures was very good for gold prices. Gold is considered to be a hedge against inflation and currency depreciation.
David Meger, head of metals trading at High Ridge Futures, said: "after the recent rally fuelled by expectations of further stimulus from the Biden administration, this is just some simple profit-taking. The prospect of further stimulus, coupled with a weaker dollar, continues to support gold in the broader outlook. "
White House economic adviser Daisy (Brian Deese) said the fragile labor market highlighted the urgency of Congress to act quickly on Biden's $1.9 trillion bailout plan to "control the virus, stabilize the economy and reduce long-term trauma that will only worsen if bold action is not taken."
On January 19, local time, the U.S. Senate Finance Committee held a hearing on the nomination of Yellen as U.S. Treasury Secretary. In her testimony, Yellen urged lawmakers to "take big action" on the next coronavirus mitigation plan. "with interest rates now at historic lows, the wisest thing to do is to take drastic action," Ms Yellen said. "
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