Muted Reaction To $1.9T Stimulus

There appears to be a some “sell-the-news” price action in equities, given that a lot of the optimism surrounding another injection of US fiscal stimulus had already been priced in ahead of the keenly-awaited announcement.

Markets are also understandably apprehensive following Biden’s foreboding remarks in addressing his proposal’s costs. A seemingly exhausted stock market reacted to the threat of higher taxes, and the intended hike in the minimum wage, by taking some risk off the table and booking in some profits.

Promise of more fiscal stimulus may come with caveats

There’s already chatter that the incoming Biden administration may not stop at just US$1.9 trillion and could roll out more fiscal stimulus. Such expectations have in recent past buoyed risk assets.

However, if the incoming fiscal support is accompanied by more risk-sentiment dampeners, such as the threat of heightened regulations, that may not have the intended booster effect on equities.

Pandemic woes still evident

Investors will have plenty to digest over the long holiday weekend for US markets. Besides the promise of more fiscal stimulus, market participants have to reconcile the still-heady heights in stock markets with the sobering realities amid the pandemic. Covid-19 cases are still raging throughout the US and Europe, and the vaccine’s rollout needing time to have its intended effect on the real economy.

In the meantime, the economy’s dire need for more support couldn’t be starker. Thursday’s weekly initial jobless claims rose back towards the one million mark to post its highest figure since August. More signs of economic angst may also be unveiled later today. Retail sales may show zero growth in December, while consumer confidence is expected to have dipped this month.

Gold climbs as Powell hushes tapering talk

Spot Gold got a slight lift as US 10-year yields dipped to the 1.11 percent level, after Fed Chair Jerome Powell poured cold water on talks surrounding a potential pullback in the central bank’s bond-buying programme. Although the 10-year yields remain significantly lower than pre-pandemic levels, they have stayed stubbornly above the psychologically-important one percent mark since last week.

The recent steepening of the yield curve indicates that markets are still optimistic about the US economic outlook and the inflation outlook. And with the Fed Chair pledging to provide ample warning time before any such tapering, so as to avoid a repeat of the infamous ‘taper tantrum’ of 2013, Gold bulls can take heart from the continued central bank support that should limit the precious metal’s downside for a while more.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Once Again, Fiscal Stimulus Takes Centre Stage

Trump became the first US President to be impeached twice, a little more than a year since his first. While he will most likely continue to serve the remaining six days of his term, his political future is now uncertain with a high possibility that he is barred from running for the presidency again if he is found guilty of incitement of insurrection.

Global equity markets inched slightly higher on the (second) impeachment day with US stocks continuing to hover near their record highs. Political noise is apparently of the least concern to investors who are looking forward to strong economic growth in 2021 and another big stimulus package from the new US administration.

According to Biden aides, the President-elect is set to reveal his plans for a COVID-19 relief package later today, which is likely to be somewhere near $2 trillion. The package will include significant funding for vaccine distribution, an extension to eviction moratorium, support for the unemployed, government aid and another sizable direct payment to American families. The latter is likely to be the trickiest part as most Republicans and some Democrats are against going too big. On the other hand, opting for a small package will disappoint investors and lead to profit-taking in equity markets. Finding the right balance will not be easy.

While political instability in Washington has so far been ignored, there remains a risk of profit-taking if violence on inauguration day escalates, especially as markets are almost priced to perfection. With valuations extremely overstretched, some investors need an excuse to book their profits and 20 January may provide this.

Another risk investors need to keep an eye on is how high bond yields go from here. The good news is we are not yet seeing significant inflationary pressure reflecting in data. US consumer prices rose 0.4% in December and when excluding volatile food and energy components, prices only rose 0.1%. Overall, rising inflation will be one of the hottest topics in 2021, but it’s too early for the Fed to announce any tapering of asset purchases. Any signs of this may bring an end to the Dollar’s decline as higher yields begin to attract Dollar inflows and make equities valuations harder to justify. This will be a topic to explore in detail later in the year. However, it will be interesting if the Fed’s Chair Jerome Powell provides any hints on this topic later today on a webinar hosted by Princeton University.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

What Does Trump’s Impeachment Mean For Markets?

Trump now has the unenviable mark of being the only US President to be impeached twice, occurring just days before he is to hand over the reins of the White House to President-elect Joe Biden on 20 January.

“Yet markets cared little for the political drama, as US stocks continue to struggle for meaningful direction.”

Here’s how US benchmark indices fared on Wednesday, with tech counters leading the pack:

  • S&P 500: +0.23%
  • Dow Jones index: -0.03%
  • Nasdaq 100: +0.63%

At the time of writing, S&P 500 futures can only inch higher, although it continues flirting with overbought territory (14-day relative strength index nearing the 70 mark).

However, US equities may receive a double boost on Thursday!

Biden to unveil stimulus plan details

The incoming US President has been teasing global investors about the “trillions” that could be poured into the US economy to help it overcome the pandemic. Such measures are set to be announced later today, which may include US$ 2000 stimulus checks for American households. A stubbornly high weekly jobless claims print, also due on Thursday, could underscore the need for more fiscal stimulus.

Stock markets had clearly reveled at the thought of more incoming US fiscal stimulus, especially in light of Democrats enjoying significantly less political resistance after winning both Georgia Senate runoffs. The S&P 500’s current record high was registered on 8 January, the same week those polls concluded.

“Should markets like what they hear, then the reflation trade may resume across asset classes, potentially recharging the rotation play in equities while sending Gold higher as investors resort to assets that may help them outpace stimulus-fueled inflationary pressures.”

Fed Chair to settle tapering debate?

Fed Chair Jerome Powell also has the opportunity to lay down a solid marker in the tapering debate that has engulfed markets his past week. Given the forward-looking nature, markets have been trying to pre-empt when the Federal Reserve might ease up on their bond-buying programme. Markets thought it could even happen sometime this year, in anticipation of a US economic outperformance that’s been aided by the trillions in both fiscal and monetary policy support.

The shift in narrative sent Treasury yields spiking, Gold prices stumbling, and the Dollar rebounding.

Fed officials have recently sent mixed signals about when they might unwind some of their policy support, although the latest commentary by Fed Governor Lael Brainard appears to pour cold water on the idea.

“A more definitive statement by the Fed Chair himself could cause major moves across asset classes.”

Should Powell shut the door tight on the very notion of tapering in 2021, that could see Treasury yields unwinding more of their gains, dragging the Greenback back down with it, while helping restore Bullion to recent highs.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Markets: Mixed Day, Midweek

Bulls probably need to get back above the December high around 91.23 to stand any chance of arresting the long-term decline. This would then put us back in the range which held from August through to December last year. It is certainly worth noting that on a long-term chart, prices have been held up by the lows from the start of January 2018 which acted a very good support, before a strong bounce back.

Expectations of US growth outperformance versus the Eurozone may put the bearish USD story on the backburner. But as long as the Fed sticks to its new inflation framework, allows for CPI to overshoot and keeps rates on hold for an extended period out until the end of next year, then deeply negative real rates will weigh on the greenback.

With that in mind, today’s headline US CPI print came in a tick higher than expected at 1.4% with wage numbers fractionally higher. What’s coming is probably more important as high headline prints are expected for the March-June period when base effects kick in. By that, we mean the change in the monthly figure will be abnormally high form the year-ago month, and will no doubt get fingers pointing at the Fed and their reaction.

Otherwise, stocks are pretty quiet as we slip back into near-term angst over longer-term light (at the end of the ever longer tunnel) mode. Increasing infections of the new Covid strain are leading to extended lockdowns in European countries with Germany warning of another eight to 10 more weeks of strict measures. Meanwhile, vaccine rollout positivity, especially in the UK has helped give a bid to GBP which is the top performing major currency. Of course, the Governor of the Bank of England turning his nose up to NIRP yesterday is also helping.

Oil flying

One asset not holding back is oil with crude prices rallying over 50% since the start of November. Around 10% of those gains have come just in this year and vaccine rollouts are definitely helping push prices higher as a major boost in transportation demand is seen. Renewed lockdowns may have something to say about this and derail the rally, but the surprise Saudi production cut last week was a welcome boon to crude bulls.

Some profit taking is being seen today which is unsurprising with these near-term risks and after such a stellar run. For further upside, bulls may need to keep prices above the December highs around $52.46 where prices broke out to keep the uptrend in play.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

 

Earnings Preview: JPMorgan Under The Spotlight

Earnings season kicks off this week, with JPMorgan releasing its Q4 2020 earnings before the US markets open on Friday 15th January.

Bank stocks have marched into the New Year on a firm note, driven by some progress on the vaccine front and renewed hopes over global economic growth.

“JPMorgan which boasts the biggest market capitalization of all US banks is up over 10% year-to-date, after concluding 2020 almost 9% lower.”

Market expectations

Sentiment towards the American multinational investment bank will most likely be influenced by the pending earnings report on Friday. According to Bloomberg, the consensus earnings per share estimates stand around $2.62 per share on $28.65 billion in revenues. For a full year, earnings are projected to decline by almost 28% to $7.77 per share, while full-year revenues of 120.26 billion would increase by 1.32%.

Will history repeat itself?

“2020 was a rough year for the banking sector as disruptions created by the the coronavirus pandemic hit consumers and businesses.”

However, JPMorgan was able to deliver mixed results in Q3 as the company’s trading division saw revenue surge by 30%.

It will be interesting to see whether the US bank will replicate such a feat in the final quarter of 2020 – especially when factoring in the bullish performance in stock markets.

What to look out for

One of the key things to look out for in the earnings report will be the loan-loss provision – something that will indicate whether the lenders have regained confidence after the pandemic drained earnings.

Banks were under the mercy of lower interet rates last year while COVID-19 created extraordinary levels of uncertainty. Such resulted in weak consumer spending which dealt a painful blow to the consumer banking side of the business.

Taking a look at the technicals

Should earnings meet or exceed market expectations, this could boost buying sentiment towards JPMorgan shares in the near term.

JPMorgan shares are trading above $140 as of writing. There have been consistently higher highs and higher lows on the weekly timeframe while the MACD trade to the upside. A solid weekly close above $140 may open the doors to fresh all-time highs beyond $141.66.

“Shifting our focus back to the fundamentals, the medium to longer term outlook may be heavily influenced by the pace of economic recovery which is linked to coronavirus infections and global vaccinations.”

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

What’s Been Moving Gold Prices?

On a week-to-date basis, spot Gold is eking out a 0.6 percent advance at the time of writing. The slight recovery has pared Gold’s year-to-date losses to less than 2%.

From a technical perspective, Bullion’s 200-day simple moving average (SMA) has been called into action once more, playing its role as a key support level. Gold bulls can take comfort from the fact that, since the end of 2018, prices have been trading consistently above its 200-SMA, and the two dips below that line over the past 12 months have been short-lived.

“In other words, Gold’s uptrend that extends back to 2018 remains intact, with the 200-SMA having been a reliable support level.”

Also note that the pullback which began last week could be deemed a healthy move from a technical perspective, considering that Gold’s 14-day relative strength index had reached overbought status by hitting the 70 mark.

“With much of the froth now seemingly cleared, the precious metal may now make a more rational move higher.”

Still, spot prices may have to clear that November high of $1965.46 to embolden Gold bulls further.

How Is Gold Affected By The Dollar And Treasury Yields?

Note that Gold has an inverse relationship with the Dollar, given that the precious metal is priced in USD. In simpler terms, when the Dollar goes down, Gold prices tend to go up, and vice versa.

Also note that Gold is a zero-yielding asset.

When the yields on US Treasuries climb, they make such investments more attractive relative to the zero-yielding Bullion. This could result in a rotation away from Gold to Treasuries, with the latter widely deemed to be a risk-free investment.

With such a context in mind, the recent pullback in Gold prices was the result of a Dollar rebound amid surging Treasury yields.

The 10-year Treasury yields strained towards the psychologically-important 1.20 percent level, after surging 30 percent between the past two Tuesdays (5 – 12 January), reaching its highest levels since March in the process. Since then, the 10-year yields have retreated by about 6.4 percent, while the Dollar index has moderated back below the 90 mark, offering some respite for Gold.

What Is The Outlook For Gold?

“There appears to be enough reasons to remain bullish on Gold, and they revolve around US inflation.”

  • Markets are expecting US inflation to overshoot, with the Federal Reserve stating it will tolerate as such. Considering Gold’s traditional role as a hedge against faster inflation, that should ensure Gold remains well-bid in the lead up to such economic conditions.
  • Real yields for US Treasuries (which take into account expectations for inflation) are in negative territory, which suggests that the yields that investors are expecting to get from US Treasuries aren’t going to overcome the forecasted inflation rate. This should ensure that Gold can maintain its allure as an inflation-beater.
  • There is also a consensus that we could see more Dollar weakness over the coming months, despite rising US yields recently challenging such a narrative. A weaker Dollar should make it easier for Gold prices to explore its upside.

Things To Look Out For This Week:

  • The December US inflation data is due out later Wednesday. A higher-than-expected print may fuel tailwinds in Gold prices.
  • Watch Fed chair Jerome Powell’s speech on Thursday. Recently, there has been some contrast among Fed officials’ views on when to pare back the central bank’s asset purchasing programme (a way to support the economy and financial conditions). The mere suggestion that the Fed could ease up on those asset purchases sometime this year has spurred Treasury yields higher. Then on Tuesday, St. Louis Fed President James Bullard and Boston Fed President Eric Rosengren poured cold water on the idea, prompting Treasury yields to pare down recent gains. Watch for more potential cues out of Powell.
  • Also on Thursday, President-elect Joe Biden is set to unveil his plans for more US fiscal stimulus which he claims would be in the “trillions”. Such swathes of incoming financial aid for the US economy could spur inflationary pressures higher. Should Gold bulls be delighted by what they hear, don’t be surprised to see Gold prices charging upwards.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

 

Risk Mood Steadies

Markets are doing the same today it seems with US stocks opening mixed and European stocks edging lower for a second straight day. Although there is increasing noise about the bubble mania of some equity markets, we know that further fiscal stimulus in the US is coming and offers key support for stocks. This should encourage further sector rotation out of growth to value stocks, such as energy and financials.

January is always an interesting month for stock market statistics, being the first of the year and the tone it can set for the year as a whole. The direction of this month has predicted the performance of the rest of the year some 75% of the time, be it gains or losses for the month. Of course, we await the inauguration of a new US President in eight days and the first year of the new incumbent of the Oval Office statistically has the lowest average return rate. And twelve of the last sixteen presidential election years followed the direction in January. Perhaps the critical point is that January tends to be one of the best return months of the year.

While the Dollar is also taking a breather from its counter-trend exertions over the last few trading sessions, bond yields are still on a tear, moving higher for six straight days and hitting post-Covid highs once more. The rise in real yields is really taking a hold on markets and is a potential big driver for the Fed and its policy direction. Markets have pushed the first rate hike forward and with Fed speakers recently talking more positively about the economy, this could be a headwind for risk assets in 2021 and support for King Dollar – which is very much against current consensus!

Sterling today’s clear winner

Governor Bailey has been on the wires today scotching talk of negative interest rates as he believes ‘there are still lots of issues’ with cutting rates below zero, one of them being that it crimps lending. In turn money markets have pushed back bets for a 10bp rate cut to 0% by the Bank of England to December from August. UK hospitals remain at breaking point but there are signs that infections are stabilising.

Once again, the bullish channel from the September 2020 lows in Cable continues to do its job after prices dipped yesterday. The 20-day Moving Average is supporting the bulls with 1.35 and 1.3450 offering support below.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Market Caution To Return On Political Risk?

The recent string of negative developments revolving around US President Donald Trump has fostered a sense of caution and unease. Given how the risk pendulum is poised to swing back and forth as investors juggle with various themes, the next few days could be interesting for markets. On one side of the scale, surging coronavirus cases, and renewed lockdowns across the globe have raised fears over the global economic recovery. However, the prospects of more stimulus and vaccine rollouts have provided a light at the end of the tunnel while raising hopes of some normality returning in the future.

While equity bulls are likely to derive strength from the ‘reflation trade’, obstacles in the form of rising yields and surging global coronavirus cases may limit upside gains.

Trump impeachment vote

Things are set to heat up in Washington after Democrats introduced a resolution to impeach U.S President Donald Trump for a second time, setting the stage for a vote on Wednesday. The idea of Democrats pushing for the removal of Trump who has less than two weeks left in his term is likely to fuel risk aversion and spur demand for safe-haven assets. If this becomes reality, the move would mark a first in history as no president has ever been impeached twice.

What does this mean for the Dollar?

The burst of uncertainty from such a development could fuel appetite for the Dollar which remains a hotspot for safety. The Dollar Index is already experiencing a technical rebound with prices trading around 90.50 as of writing. A solid daily close above this point could encourage bulls to target 92.00 and 92.70, respectively.

Commodity spotlight – Oil

Oil prices are trading near levels not seen since February 2020 amid signs of tightening global supply. Although bulls remain in the driving seat, demand-side factors could spoil the party. Surging global coronavirus cases and associated lockdowns across the globe may fuel fears around weak oil demand. Volatility may be on the horizon for Oil which is up almost 7% since the start of 2021.

How the commodity performs this week may be influenced by the pending OPEC monthly market report and the Dollar’s movements.

Looking at the technical levels, WTI Crude may challenge $55 in the near term due to the bullish momentum.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Political Pressures Weighing On Big Tech Stock Prices

The tech-heavy Nasdaq 100 shed 1.55 percent, compared to the 0.66 percent decline in the S&P 500 and the Dow Jones index’s 0.29 percent drop.

Big Tech’s response to Capitol chaos draws ire from politicians and investors

In the wake of last week’s chaos on Capitol Hill, Facebook has suspended President Donald Trump’s account until at least Inauguration Day, while Twitter has “permanently suspended” his account. Google and Apple have removed from their stores the alternative social media platform known as Parler, which is favoured among Trump supporters. Amazon has also denied Parler access to its web servers.

Such moves have been publicly decried by senior lawmakers in France and Germany, including German Chancellor Angela Merkel.

And markets also made their voices heard, as evidenced in Monday’s performance for these tech stocks:

  • Twitter: -6.41%
  • Facebook: -4.01%
  • Apple: -2.32%
  • Google (Alphabet): -2.31%
  • Amazon: -2.15%

The backlash against social media and tech platforms then fed into a 2.4 percent drop in the FXTM Social Media index on Monday. The index (which comprises Facebook, Google, Twitter, and Snapchat shares in equal weights) has been trading sideways since the November elections, in contrast to the broader gains in US equities over the past two months.

Will Big Tech’s stock prices post new record highs soon?

These recent contentions surrounding censorship and freedom of speech isn’t likely to have a long-lasting impact on Big Tech’s fundamentals, compared to the other woes facing the sector. Note that these tech behemoths had been facing lawsuits and tightened scrutiny from US and European lawmakers, and such political pressures are enjoying bipartisan support.

It remains to be seen how long this latest backlash will last, though such bouts are not new to these tech giants.

“As investors continue digesting these risks, while also contending with the stretched valuations in these stocks, Big Tech is set to have a harder time posting new record highs compared to benchmark US stock indices in the months ahead.”

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Technical Outlook: Gold Cracks Under USD Rebound

The precious metal has been bruised by an appreciating Dollar while rising U.S. bond yields rubbed salt into the wound.

For those who are wondering why this matters, Treasury yields have an inverse correlation with Gold. Given its zero-yielding nature and relationship with the Dollar, the next few days could be rough and rocky for the precious metal.

Since the start of 2021, prices have dropped almost 3% despite the global ‘reflation trade’ receiving a real kicker from the blue wave victory in Georgia’s Senate runoff. However, the battle is far from over for bulls amid the list of fundamental themes supporting appetite for Gold.

Given how Democrats have taken control of the Senate, hopes of further fiscal stimulus have risen. This is fuelling expectations over inflationary pressures making a return in the United States as consumption jumps. With the Dollar’s purchasing power poised to weaken as inflation rises, Gold which is seen as a hedge against inflation is set to benefit. When factoring in how the Federal Reserve is committed to keeping its ultra-accommodative monetary stance in place until at least 2023, the medium to longer-term outlook for the precious metal is bright.

It does not end here. Everything comes at a cost, even the handsome fiscal packages enforced by the government. The federal deficit surged to a record $3.1 trillion in the fiscal year of 2020, according to the Treasury Department. When a fiscal deficit arises, it impacts confidence in the economy and spurs safe-haven demand for Gold.

In our monthly outlook webinar for January, we discussed the possibility of Gold deriving strength from the ‘reflation trade’. Although prices look bearish in the short term with the downside fuelled by an appreciating Dollar, the medium to longer-term outlook remains bullish.

On the weekly timeframe, prices remain a very wide range with tough support around $1760 and resistance around $1960. A strong move back above $1850 could open the doors back towards $1900 while a breakdown below $1800 could signal a decline towards $1760.

Before dissecting the daily setup, check out the key market events in the week ahead which could influence Gold’s near-term outlook.

Focusing back on the technials, all eyes will be on how Gold behaves around the $1850 on the daily charts. A close below this level could encourage a decline towards $1820 and $1775. Should $1850 prove to be reliable support, prices may rebound back towards $1900.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Global Stocks Retreat From Record Highs, Dollar Extends Gains

Last week President-elect Joe Biden promised a hefty stimulus rollout worth trillions of Dollars, which we will learn more about on Thursday when details are announced. That had greater influence on markets than the surprising 140,000 job losses in December that we saw in Friday’s Non-Farm Payrolls report.

Expect markets to continue ignoring the political turmoil in Washington as Democrats, with the support of some Republicans move toward impeachment proceedings against President Donald Trump as soon as today.

What cannot be ignored is the rise in US government bond yields. Last week alone, US 10-year Treasury yields rose 20% making a high of 1.125%. This move in bond yields will likely prompt investors to re-think their strategies for 2021, especially if we see a bigger upside move in the weeks and months ahead.

The equity rally seems to have paused at the start of the week. Futures of all three US major indices are pointing towards a pullback today after all reached new records on Friday. While it is extremely difficult to call for a correction in the current environment in which a synchronised combination of fiscal and monetary policies is taking place, investors need to start thinking about protecting their portfolios.

What we are experiencing in equity markets might not be a bubble similar to the one in late 1999, but there is no doubt that valuations are extremely overstretched. Negative real interest rates have encouraged this massive flood into almost all asset classes, particularly growth stocks, low rated corporate debt and even cryptocurrencies as of late.

The higher bond yields go from here the more difficult it becomes justifying a P/E multiple of 40 on the Nasdaq 100 or a 1.5% dividend yield on the S&P 500. If the Federal Reserve does not take steps to increase purchases of longer-term maturities, we could have 10-year yields well above 1.5% by year end. This means US inflation data is likely to become the most watched indicator over the coming months. According to US 10-year break-even rates, markets now expect inflation to be above 2% on average. While the Fed does not seem in a hurry to raise interest rates, shifting economic dynamics may force them to act sooner rather than later.

Shorting the Dollar was the most recommended trade in currency markets heading into 2021. However, rising yields could now lead to a rethinking of this strategy. If the yield curve becomes steeper and differentials become much wider, expect to see a strong recovery in the Dollar despite the new billions in expected stimulus. According to the latest CFTC data, we are already seeing a trimming of long positions in major currencies against the greenback.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

 

Key Market Events This Week

Besides the world’s struggles with the Covid-19 pandemic that blanket market sentiment, here are some key events to look out for over the coming days:

  • Monday, 11 January: Key Fed officials may offer clues on asset purchasing pullback this week
  • Wednesday, 13 January: Democrat-controlled House may vote to impeach Trump, again
  • Thursday, 14 January: Biden unveils stimulus plans, Fed chair Powell speech
  • Friday, 15 January: JPMorgan kicks off US earnings season

Monday, 11 January

Given the forward-looking nature of the markets, investors have begun pondering when might the Federal Reserve begin easing up on their asset purchasing programme, which has been a major supportive element for financial markets since the pandemic. Starting Monday, various key Fed officials are scheduled to offer their respective economic outlooks over the coming days, culminating in Fed chair Jerome Powell’s webinar appearance on Thursday.

“Considering that 10-year US Treasury yields are already at their highest levels since March, the mere hint of a pullback in the Fed’s asset purchasing programme could trigger another yields spike, which could come at the expense of the non-yielding Gold.”

Wednesday, 13 January

With the chaotic scenes from last week’s Capitol breach still fresh in the world’s mind, Democrats are moving to impeach outgoing US President Donald Trump. That is, unless Vice President Mike Pence and the cabinet remove Trump first by invoking the 25th amendment, which appears unlikely.

“While this could be mere political drama which markets are more than willing to ignore, it still presents a risk that prudent investors must continually monitor.”

Thursday, 14 January

The reflation trade could be given fresh legs when President-elect Joe Biden outlines plans for “trillions of dollars” in added US fiscal stimulus. This would be a much-needed boost, especially in light of last Friday’s surprise contraction of 140,000 jobs in the December US non-farm payrolls report.

It remains to be seen which sectors would benefit the most, but Gold prices could see a pickup on heightened expectations for stimulus-fueled inflationary pressures, while US stocks may well ride higher on such optimism.

Friday, 15 January

The US earnings season will kick off with JPMorgan leading the way once more. Banking stocks are back in vogue, as investors anticipate more fiscal stimulus as well as an extended ultra-accommodative policy stance by the Fed. The S&P 500 Financials Index has already gained 4.65 percent so far in 2021, making it the third best-performing sector on the benchmark index, behind Materials (+5.68%) and Energy (+9.31%).

Although the Q4 financial results that will be released over the coming weeks are backward-looking in nature, investors would be paying more attention to the business outlooks for these companies. Commentaries that harbour a more positive performance in the year ahead could spell more upside for share prices.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

 

Week In Review: Blue Wave, Capitol Chaos, NFP Miss

All eyes were on the OPEC+ meeting on Monday which ended up being delayed by an extra day due to disagreements over whether to relax production cuts in February. Talks eventually concluded with the cartel lifting oil production by 75,000 barrel per day over January’s levels. However, the real shocker was when Saudi Arabia announced that it will slash its output levels by 1,000,000 barrels per day (bpd) over February and March.

Unease over the rising global coronavirus infections, vaccine hiccups and renewed lockdowns hit US equity markets on Monday evening. A sense of caution ahead of the Georgia Senate runoffs on Tuesday also played a role in the drop in appetite for riskier assets.

King Dollar remained depressed and deflated ahead of the election results as investors braced for a possible ‘blue wave’ outcome – a scenario where Democrats won both seats, handing them control of the chamber.

Expectation over further US fiscal stimulus rose after Democrats were officially declared winners of both Georgia Senate runoffs. Such a development elevated equity markets to record highs as the reflation trade was given a big kicker.

It was utter chaos on Capitol Hill mid-week, as it was breached by pro-Trump protesters. Lawmakers were in the middle of a debate over the legitimacy of the November presidential election results before they were disrupted by the mob! Interestingly global stocks shrugged off the riots with global stocks pushing higher as the reflation trade fuelled equity bulls.

Elon Musk has become the richest man in the world, thanks to a 750% rise in Tesla stocks over the last 12 months. In the cryptocurrency space, Bitcoin aimed for the stars – hitting an all-time high above $41,000

So much for a slow start to the New Year, right? The caution witnessed at the beginning of the week was swept away by the Senate runoffs, chaos on Capitol Hill and Saudi Arabia shocker!

On Friday, Gold prices tumbled over $40 while Oil  extended gains to levels not seen since February 2020. A sense of disappointment swept across markets on Friday afternoon after US payrolls fell for the first time since April 2020. The US economy shed 140,000 jobs in December, a major miss from the 50,000 market expectations as coronavirus infections soared across the country. Although the Dollar offered a muted reaction to the report, it may raise expectations for fiscal stimulus measures to bolster economic growth.

Risk-on could remain in the name of the game next week as equity bulls ride on the ‘blue wave’ high. This could mean more pain for the Dollar but fresh comfort for Gold. However, rising global coronavirus cases and renewed lockdowns could spoil the party. With so much going on, the next few weeks and even months could be wild for markets.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

 

Stocks Set For More Record Highs

From a pair of tense Senate runoffs, to a mob breaching Capitol Hill, and even a shock supply cut from Saudi Arabia, global investors have had plenty to take in this week.

“Yet, the buying momentum in stocks has shown its resilience.”

After overcoming the slight wobble on Monday, US equity benchmarks have since posted new record highs on Thursday, with futures contracts still in the green at the time of writing. The MSCI ACWI index, which measures the overall performance of stocks across emerging and developed markets, also registered its highest ever close yesterday. Asian equity benchmarks are climbing on Friday, with the MSCI Asia Pacific index advancing some two percent already so far this year.

Reasons Aplenty To Look Up

Stock market bulls have many reasons to expect further gains. Investors are getting more comfortable wading further out into risk-on waters, considering that the spillover from 2020’s downside risks have abated, be they Brexit concerns, or the US election cycle (with outgoing US President Donald Trump finally stating his intent for a smooth transition).

Now, investors are gravitating towards the increased likelihood of more incoming US fiscal stimulus in light of the Democrats’ sweep of the Georgia Senate runoffs. The latest FOMC meeting minutes underscore policymakers’ will to hold fast to its supportive stance. The Covid-19 vaccine continues its global rollout, with Moderna’s vaccine receiving the EU’s blessing this week.

“Such elements are fostering a highly supportive environment for global equities, affording investors the luxury of looking past the persistent pandemic woes.”

Dollar Bears Likely Unfazed By US Hiring Slowdown

Fundamentally-driven investors will be focusing on the US non-farm payrolls release later today, amid expectations for a mere increase of 50,000 jobs in December. Such figures would be a far cry from the millions of jobs that were restored in the months after the initial national lockdown was ended. A December NFP print of 50,000 would also be a mere one-fifth of the jobs added in the month prior, signaling that the post-lockdown recovery is stalling.

Still, the dissemination of more fiscal stimulus under the incoming Biden administration should help tide the US economy over. After all, the president-elect did vow this week to mail out those US$2,000 checks would be sent out “immediately” if Democrats won the Georgia Senate runoffs, which they did.

“With such expectations intact, the Dollar index may not have much legs left in its recent rebound.”

Gold Supported By Hopes Of Faster US Inflation

10-year Treasury yields breaching the psychologically-important one percent mark this week, along with the Dollar’s rebound, have dealt a slight setback to Gold prices. Yet, the precious metal is still trading above the psychologically-important $1900 level, and remains on course for a sixth straight weekly gain.

“Bullion remains supported by the reflation trade, amid expectations that Democrats’ control of the White House, Senate, and the House should pave the way for more incoming fiscal stimulus that can drive up US inflationary pressures.”

However, should December’s non-farm payrolls report later today offer more evidence of a stalling US jobs market, that may dampen Gold prices in the immediate aftermath, while waiting for more inflationary boosters to come through. The Fed’s conveyed tolerance for an inflation overshoot also bodes well for the precious metal’s upside.

“Spot Gold still harbours the potential to reclaim the $2000 handle, especially if the precious metal’s tailwinds can gather pace as 2021 unfolds.”

Still, as commented by Fed officials this week, there appears to be a risk of a pullback in the Fed’s asset purchasing programme should a US economic outperformance crystalize in the latter part of the year. Another massive yields spike may then trigger the further unwinding of Gold’s recent gains.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Global Stocks Shrug Off Chaos In Washington

For many, such scenes can only be seen in Hollywood movies, but Trump supporters turned it into reality after invading the US Capitol in Washington. One would expect the violent and chaotic scenes that temporarily interrupted the ratification of President-elect Joe Biden’s victory in the 2020 election to lead to a selloff in risk assets, but it turned out to have little impact on investors’ decisions.

In fact, the scenes that played out in real-time across global cable television did nothing to alter expectations of the near to mid-term political and economic outlook. What really matters for investors is the Democrat’s victory in the two runoff races in Georgia. With a 50–50 split in the Senate between Republicans and Democrats and Vice President Kamala Harris casting a tiebreaker, the Democratic party is now in control of the Presidency, House and Senate forming what has been called a “blue wave”.

President-elect Joe Biden will push hard on reviving stimulus and that is why we are seeing small caps and cyclical stocks outperforming growth. Yields on US 10-year Treasuries are up 13 basis points from Monday’s close, hovering around 1.05%, the highest level since March. Meanwhile, the Dollar remains stuck near 3-year lows as rising debt levels, along with low interest rates, are expected to keep putting downward pressure on the Greenback.

The reflation trade is now in full swing and is likely to continue for some time. However, the Tech sector, which may suffer under a Biden administration who has pledged to raise corporate taxes and antitrust regulation, fared better than expected closing down just 0.6% yesterday. Nasdaq Composite futures are up 0.9% at the time of writing, following a sharp initial selloff of some 2% yesterday as FANG stocks all closed lower. While taxes may go higher, it will not likely be any time soon as the economy remains weak and it will be difficult to justify a tax hike to the Democrat centrists in the current environment. The biggest risk for richly valued growth stocks is not taxes, but interest rates and as long as they remain contained, I do not expect a steep fall in the tech sector. However, small, value and cyclical stocks are likely to continue outperforming growth in the upcoming few months if the world is believed to be cured from the coronavirus by year-end.


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Monthly Outlook – Webinar Jan 11

Join our Senior Research Analyst, Lukman Otunuga, and Market Analyst, Han Tan, for the first Monthly Outlook of the year to find out what the new year might have in store. This interactive presentation reveals potential trading opportunities with the Dollar, as the US welcomes a new president, the Pound, in the wake of Brexit’s final chapter and relentless Covid-19 concerns, Oil, as investors eagerly await news from scheduled OPEC meetings and much more! A live Q&A session will follow, providing you with the perfect opportunity to get your most pressing questions answered by our experts! Don’t miss out on the chance to learn more about what’s moving the markets in January, and what lies ahead for major markets in the first quarter of the year! All the material presented has been approved by the Company’s Key Individual, in accordance to FSCA guidelines.

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FXTM Senior Research Analyst Lukman Otunuga holds a BSc degree in Economics from the University of Essex and an MSc in Finance from London School of Business and Finance. A keen follower of macroeconomic events with a strong professional background in finance, Lukman is well versed in the markets. Read his full profile here.

The One Minute Exercise Demonstrated – Webinar Jan 13

This webinar is intended for new traders that understand the value of practicing on the price charts, but have limited available time. The One Minute Exercise and its basic principles will be demonstrated using a variety of instruments over a series of trades. Attendees will be able to ask questions and participate actively during the course of the webinar. The purpose of this informative presentation is to help traders to gain confidence in their own trading abilities. Don’t miss out on the chance to learn from one of our experts from the comfort of your own home! All the material presented has been approved by the Company’s Key Individual, in accordance to FSCA guidelines.

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FXTM Trading Educator Theunis Kruger has always been fascinated by economics, with a particular interest in ‘wave’ formations and how they can be used to forecast and analyse trends in the financial markets. With a decade of solid trading experience to his name, Theunis now enjoys sharing his knowledge with others.

Dollar Deflated Ahead Of Georgia Election Results

After losing almost 7% of its value in 2020, the tired Dollar has stumbled into the New Year in a depressed and unloved fashion. It has weakened against every single G10 currency since Monday and even pushed emerging market currencies up to record highs amid the stimulus fueled optimism. Positive economic data from Asia also played a role in reviving optimism around the global economy – ultimately blunting appetite for the safe-haven currency. The path ahead for the Greenback is filled with many obstacles with the lastest one taking the form of the U.S Senate run-off election in Georgia.

What do the runoffs mean for the Dollar?

Investors seem to be bracing for a possible ‘blue sweep’ outcome in Georgia where Democrats win both seats, handing them control of the chamber.

Such an outcome may pave the way for larger fiscal stimulus and infrastructure spending, essentially weakening the Dollar further.

However, a ‘blue sweep’ could also result in higher tax hikes and greater corporate regulation – potentially punishing stocks in the short to medium term. Given the larger fiscal stimulus is seen triggering inflationary pressures over time, the outlook for the Dollar points south.

When will we get the results?

Elections for the two Senate seats in the US state of Georgia are quite tight with 98% of votes already counted.

Early on Wednesday, Mr. Warnock claimed victory against Ms. Loeffler while David Perdue remains neck and neck with Democrats Jon Ossoff. The final result is not expected at least before Wednesday morning in the United States.

Let us not forget about the FOMC minutes…

All eyes will be on the FOMC minutes on Wednesday evening which should shed some light on the Fed’s thinking on monetary policy for 2021.

In December, the central bank left interest rates unchanged and signalled that near-zero interest rates would remain a theme through 2023 to support the US economy.

Given how the Fed vowed to inject cash into the financial markets until the U.S economic recovery is secure, it will be interesting to see whether the minutes provide further insight.

If the minutes adopt a dovish tone, the Dollar is poised to extend losses in the week ahead.

Technical outlook: DXY approaches 89.00

The Dollar Index is heavily bearish on the daily charts as there have been consistently lower lows and lower highs. A solid daily close below 89.00 could open a path towards 88.00. For bulls to jump back into the game, a strong rebound back above 90.00 needs to materialise.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Saudi Surprise Sends Oil Soaring

The shock decision was in stark contrast to market expectations leading up to this past Monday’s OPEC+ meeting, with the alliance of major Oil producing nations due to decide whether or not to hike output levels by 500,000 bpd again in February.

The shock announcement saw Crude oil prices breaching the psychologically-important $50/bbl mark for the first time since February. However, with its relative strength index now flirting with overbought levels, perhaps an immediate-term pullback is on the cards.

Likewise, Brent Oil, which is the global benchmark, reached its highest levels since February on the news. At the time of writing, it’s on the cusp of reclaiming the $54/bbl handle.

Here’s a recap of OPEC+ output decisions since the global pandemic:

  • April 2020: will slash output by a record 9.7 million bpd beginning May 2020, or equivalent to around 10% of global supply, to offset the demand destruction wrecked by the pandemic.
  • July 2020: to restore some 2 million bpd starting August 2020 amid green shoots of the global economic recovery.
  • December 2020: to raise output by 500,00 bpd in January 2021, as opposed to the previously intended 2 million bpd, given the resurgence of Covid-19 cases and tighter virus-curbing measures in major economies.
  • 4 January 2021: OPEC+ meeting adjourned as members were unable to reach consensus on February output levels – whether to rollover January’s output settings or raise them by another 500,00 bpd, as favoured by Russia.

Cracks within OPEC+ may resurface

Although Saudi Arabia’s decision has been cheered by Oil benchmark prices, it risks laying bare the power struggles within the alliance.

“Saudi Arabia’s unilateral supply cuts clearly showcases Riyadh’s preference for higher Oil prices, although other producers prioritize retaining market share.”

In recent weeks, Russia had been pushing for an output hike of 500,000 bpd, for fear that non-OPEC+ producers such as US shale oil producers may otherwise step in and fill the gap in the global markets. Under this latest arrangement, Russia can merely raise its production by a measly 65,000 bpd for each of the next two months. In recent past, the likes of Nigeria, Iraq, and the UAE have had their respective requests for output hikes denied.

Risk of moral hazard

If Saudi Arabia is apparently willing to do the heavy lifting for the other OPEC+ members, then the will to comply with existing output ratios may be diminished. In other words, other OPEC+ members who had been vying to preserve their market share may be emboldened to do so, knowing that Saudi Arabia would be there to step in to shore up prices with its own supply cuts.

The competing goals (higher prices vs. market share) may lay bare the fragility within the OPEC+ alliance, and one merely has to revisit the Oil price capitulation that was seen in March 2020 to realize what a divided OPEC+ alliance could do to Oil prices.

“In order for Oil prices to continue its return to pre-pandemic levels, not only must the global economic recovery stay the course, OPEC+ members must also demonstrate a unified will and maintain the discipline to manage output levels.”

Otherwise, the Oil price recovery could turn out to be a fleeting phenomenon.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Dollar kicks off 2021 on the backfoot, Gold shines

Low interest rates and an improving economic outlook following vaccines rollout has led to further short selling in the US Dollar, particularly against the Euro and Chinese Yuan.

China’s Renminbi strengthened 1% in early Monday trade, with USD/CNY crossing below 6.50 for the first time since June 2018. That has erased all Chinese currency losses since the US-China trade war kicked off officially in July 2018.  The strength in the Chinese Renminbi came despite slowing manufacturing activity. The Caixin/Markit manufacturing PMI slipped 1.9 points in December to 53.0. However, activity in the world’s second-largest economy remains in expansionary mode, while developed economies continue to impose lockdowns to control the virus spread.

Another supporting source for the currency comes from China’s Foreign Exchange Trade System which announced a reduction in the US Dollar’s weighting in the currency basket to 18.79% from 21.59%, while increasing the Euro’s weighting to 18.15% from 17.40%. The absence of any intervention from the PBOC or state banks would suggest further gains in the upcoming weeks with a possible retest of the 2018 lows of 6.24.

Tuesday’s Georgia Senate runoff elections will be critical for the US Dollar as a Democrat win of the two Senate seats could potentially unleash a lot more stimulus which simply suggests more pain for the Greenback.

Gold is also starting the new year with a bang as the precious metal has surged more than 1.2% and hit a high of $1925. Multiple factors are likely to continue lending support for Gold in the upcoming months. The pandemic will not disappear in a matter of weeks with tougher lockdowns also expected as Covid cases continue to rise. Hence central banks will need to keep policy loose by expanding their balance sheets. And given we are starting 2021 with extraordinarily rich valuations in equity markets, Gold is a must-have asset in portfolios. I think it’s only a matter of time before we cross back above $2,000 and I won’t be surprised if new highs are recorded in the first quarter of 2021.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.