Gold Hits $1800 but Ultra-dovish Fed Suggests it isn’t the Limit

<p><span>U.S. Senate unanimously voted on Tuesday to extend a key stimulus maneuver &#8211; Paycheck Protection Program. The goal of this program was to offer cheap loans for firms which want to save jobs. Initially it was expected that the program would be completed before the end of June, but Senate’s to extend it suggests that a wave of layoffs waits the economy without credit support. US stock markets welcomed the decision of the government to extend the program, SPX added 1.5%.</span></p>
<p><span>The program could account for some distortions in May NFP report since firms has strong incentive to delay layoffs or even boost hiring. The extension of the program means that the real trend in unemployment may be also masked in July.</span></p>
<p><span>Last week we discussed prospects of the Gold rally to $1800 level, which was successfully completed on Tuesday:</span></p>
<p><img class="alignnone size-large wp-image-46313" src="http://blog.tickmill.com/wp-content/uploads/2020/07/1-1024×598.png" alt="" width="1024" height="598" srcset="https://blog.tickmill.com/wp-content/uploads/2020/07/1-1024×598.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/07/1-300×175.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/07/1-768×449.png 768w, https://blog.tickmill.com/wp-content/uploads/2020/07/1-1536×897.png 1536w, https://blog.tickmill.com/wp-content/uploads/2020/07/1-2048×1196.png 2048w" sizes="(max-width: 1024px) 100vw, 1024px" /></p>
<p><span>The price of gold has risen to the highest since 2012 amid falling real interest rate in the US and expectations that this trend will continue. This week, these expectations were fueled by a gloomy warning by the Fed’s Powell. Despite positive changes in eco data in May and June, Powell said that significant uncertainty continues to reign in the prospects for economic recovery.</span></p>
<p><span>Translating this into the language of concrete actions, the Fed may soon begin to target the yield curve &#8211; affect government bond market in such a way that the price of bonds of some maturity (medium to long-term) will fluctuate in a narrow band. In other words, control their yield. Decreased uncertainty about medium and long-term rates should boost lending for respective terms. Today we expect release of the Minutes of the past Fed meeting, which should shed light on intentions of the US central bank to further ease monetary policy, including targeting the yield curve. </span></p>
<p><span>In this regard, gold has a room for appreciation above $1800 because it becomes increasingly clear that the Fed will ease more depressing yields further.</span></p>
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