Gold market climbs higher on dovish Fed bias, unemployment claims, repo market concerns

(USAGOLD – 12/12/2019) – Gold began to climb in the immediate aftermath of the Fed’s meeting yesterday and continued to gain ground at today’s New York market open.  It is up $10 on the day at $1485 and up $20 from early yesterday afternoon.  Silver is up 19¢ on the day at $17.06 and up 40¢ since yesterday’s meeting announcement. A Labor Department report showing unemployment claims surging to a two-year high added to the momentum, as well as ongoing concerns about overnight repo market liquidity going into year-end.

In the wake of yesterday’s Fed meeting, Citibank said it was sticking with its forecast that gold could see $1600 in 2020, according to a BNN Bloomberg report this morning. “The policy rate is highly unlikely to move higher and the Fed is capping the rise in real medium-term yields, as well as nominal yields, at the belly of the U.S. Treasury curve, so you reduce the opportunity costs of holding gold,” says Aakash Doshi, the bank’s senior commodities research director. Citi sees the potential for gold to rally above its all-time record in 2021 or 2022 surpassing the $2000 mark, according to the report, “given broader official sector buying trends as well as the Fed eventually reverting to the zero lower bound.”

Chart of the Day
Overlay chart showing growth in repo market resulting from Fed cash injections since September 2019

Chart courtesy of Bianco Research

Chart note: ‘This is now far bigger than anyone thought this was going to be,’ [Bianco Research’s James] Bianco said in a MarketWatch article. ‘I think they’re hoping the market will magically fix itself. I don’t see why it would.’” On his twitter page, Bianco writes “Remember, it is Not QE!!!”

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