By Barani Krishnan
Investing.com - Stocks lost their steam while a flight to safety propped gold above $1,700 on Tuesday, as investors expected the Federal Reserve to remain loose with monetary policy at its monthly review.
“The gold bull is coming back,” TD Securities said in a note. “We reiterate that those selling gold in response to risk-on are improperly discounting the macro implications — the Fed will maintain its uber-easy policy for the foreseeable future, and may even utilize more tools (such as yield curve control) to support yields amid the forthcoming and massive Treasury issuances.”
U.S. gold futures for August delivery settled up $16.80, or 1%, at $1,721.90 per ounce as both the Dow and {{166|S&P 500} indexes slid.
Stocks, which typically move in the opposite direction to gold, hit three-month highs in Monday's session, riding a wave of euphoria after the U.S. Labor Department reported an unexpected hike of 2.5 million U.S. jobs in its May report despite the continued shutdown of many businesses last month from the Covid-19. Gold futures slumped beneath $1,700 right after the release of the jobs report early Friday, before rebounding in the last two sessions.
Spot gold, which tracks real-time trades in bullion, rose by $14.96, or 0.9%, to $1,713.53 by 3:00 PM ET (19:00 GMT).
The dollar, another alternative trade to gold, dipped 0.3% for a second straight day.
The Fed will close a two-day policy meeting on Wednesday with all eyes on Chairman Jay Powell to see what he says in response to the unexpected jobs growth in May. Congress and the White House have approved trillions of dollars so far to help the U.S. economy fight the negative effects of Covid-19, with the Fed particularly entrusted to lend to businesses under its Main Street loans program.
“Powell will likely welcome the shockingly better-than-expected nonfarm payroll report but highlight that recovery will take longer and remains vulnerable to several risks to the outlook,” said Ed Moya, an analyst at New York’s OANDA. “ A plethora of risks to the outlook should help keep gold prices climbing higher in the short-term.”
TD Securities said it expected real rates to be further suppressed from Fed actions.
“Macro drivers such as this have been the primary driver for accumulation of gold over the past months,” it said in its note. “We continue to expect capital to seek shelter in gold from a prolonged period of negative real rates. Systematic trend followers are maintaining a long bias in gold, with a rising hurdle rate for liquidations.”