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Gold Gets The News It Was Looking For

Clif Droke profile picture
Clif Droke


  • Fed's decision to maintain loose money is welcome by the gold market.
  • Sustained dollar weakness will sooner or later lift gold prices.
  • Gold mining stocks will also eventually benefit from the inflation threat.

Precious metals investors have cause for being optimistic after this week’s Federal Reserve policy meeting. With bad news in abeyance in recent weeks, gold has lacked a headline-related catalyst and consequently was stuck in neutral. However, the Fed’s recently stated intention to continue its stimulus efforts indefinitely should give the metal’s price a much-needed boost as the U.S. dollar continues to weaken. As I’ll argue in this report, this is just the news the market was waiting for, and we should see gold - and eventually gold stock prices - responding favorably to it in the coming months.

On Wednesday, the Federal Reserve left interest rates unchanged as most observers expected. What really turned the market’s head, however, was Chairman Powell’s statement that the central bank would maintain its loose money policy until the U.S. economy shows complete immunity to the “recent events” that made the stimulus necessary in the first place. Acknowledging the “tremendous human and economic hardship” in the wake of government-mandated shutdowns, Chairman Powell said:

We're not thinking about raising rates—we're not even thinking about thinking about raising rates.

This is exactly the sort of news precious metal traders wanted to hear, in consequence of which the gold price shot up to just below its April peak price. Although gold remains within the boundaries of an 8-week trading range, there’s now a greater chance that gold will push out of its recent range - and well above the $1,750 level - by summer as low-yielding sovereign bonds become even more unattractive to safety-conscious investors thanks to Fed policy.

Gold Continuous ContractSource: BigCharts

While some analysts believe that continued central bank stimulus will lessen gold’s attraction as a safety investment, it will almost certainly increase gold’s currency component. For, the Fed’s relentless drive to increase liquidity while the economy operates well below its

This article was written by

Clif Droke profile picture
Clif Droke is an equity research analyst and writer for Cabot Wealth Network. He has covered equities and commodities, specializing in gold, since 1997 and is the editor of the Cabot SX Gold & Metals Advisor.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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