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27.01.202113:27 Forex Analyse & Reviews: Gold is political metal

Exchange Rates 27.01.2021 analysis

Gold and silver were volatile and bilateral this week, amid a number of factors that pushed prices higher.

To add to that, the outcome of the two-day meeting of the US Federal Reserve could become a catalyst for further price increase, much higher than the recent trading ranges.

There is also a big chance that the US Congress will consider the proposed $ 1.9 trillion bailout bill, and such will be very favorable for gold.

"Gold is a political metal that competes with US treasuries", said Luke Gromen, president of Forest for the Trees. "Because of this, government officials have historically tried to control its price," he added.

In particular, if gold does well, the government will be forced to painlessly fund its deficit. So, to avoid this, authorities try to control the price of gold.

"This is not a conspiracy theory" Gromen claims. "You can read the materials made by representatives of central banks from different countries. The Bank of England, for example. Or the American economist, Greenspan, who has been running the Fed for 18.5 years. The telegrams of the US Department of State in the 1970s also argued that the price of gold must be controlled."

Now, while the dollar is not pegged to the gold standard, Gromen said gold has the potential to hit $ 6,000 an ounce, but is being held back.

"Most people who buy gold don't end up buying physical gold. They end up buying the right to claim gold," he commented.

"So, if people want to buy gold, one of two things can happen. Either the effective use of the amount of paper for each physical ounce, in which case the price will not rise. Or an increase in the amount of physical gold, which will affect the price. What we've seen institutionally and systematically over the past 30+ years has been an expansion of paper leverage instead of an increase in gold prices. "

Speaking specifically about the precious metals market, Ole Hansen, head of commodity strategy at Saxo Bank, said he believes that gold prices will continue to be supported by rising inflationary pressures, coupled with a weaker US dollar.

The bank currently expects gold prices to rise to $ 2,200 an ounce this year, and silver prices to rise to $ 35 an ounce.

Saxo Bank also voiced its uncertainty that the yield on the US dollar or bonds will provide a headwind for gold and commodities. John Hardy, head of the bank's foreign exchange strategy, said the rising government debt was creating an almost existential crisis for the US dollar. He added that the US dollar will not find much support from rising bond yields because at some point, the Federal Reserve will have to take steps to maintain accommodative monetary policy.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Uitgevoerd door Andrey Shevchenko,
Analytische expert
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