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Dovish Central Bank Policy Stance To Support Precious Metals

By Abhishek BansalCommoditiesApr 27, 2021 04:56AM ET
www.investing.com/analysis/dovish-central-bank-policy-stance-to-support-precious-metals-200575547
Dovish Central Bank Policy Stance To Support Precious Metals
By Abhishek Bansal   |  Apr 27, 2021 04:56AM ET
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Gold prices are currently trading near $1780.55 buoyed due to the resurgence of Covid-19 infections throughout the world, which has raised the prospects of new lockdowns. The world economy is likely to suffer from it. The global central bank may continue to support the economy by keeping the interest rate lower for the longer term.

The dollar index is trading near 90.938 which is sharply lower from the recent high of 93.470 registered on Mar. 31. Also, weakness has continued in United States 10-year Bond Yield which is positive for precious metals prices. The United States 10-Year Bond Yield is now trading at 1.5809 and sharply lower from the recent high of 1.7760 registered on Mar. 30.
 
Meanwhile, Japan's central bank raised its growth forecasts for the world's third-largest economy, citing expected stronger demand, and left its ultra-loose monetary policy in place. But it acknowledged that the outlook remains "highly unclear" which is supportive of safe-haven demand in precious metals. BOJ signalled that policy could change depending on how the still-raging coronavirus pandemic evolves and affects the domestic and international economy.

BOJ revised up its forecast for the 2020-2021 fiscal year that ended on Mar. 31, projecting the economy would shrink 4.9 percent, compared with the 5.6 percent contraction it predicted in January. For the current fiscal year, it now expects 4.0 percent growth, against its January forecast of 3.9 percent, while it lifted its expectations for the fiscal year ending in March 2023 to 2.4 percent, from 1.8 percent previously.
 
Dovish comments on Monday from ECB Executive Board member Panetta were bullish for precious metals. He said, "faced with uncertainty about the true economic damage caused by the pandemic, we must preserve accommodative financing conditions well into the recovery."
 
The US Fed’s two-day policy meeting, which ends on Wednesday, is likely to provide fresh direction to gold prices. We expect no major policy changes, however; it will be important to watch Chairman Jerome Powell’s outlook on the economy.

On the economic data front, US April Dallas Fed manufacturing activity increased by 8.4 points and reached a 2-3/4 year high of 37.3, against the expectation of 30.0. US March capital goods orders nondefense ex-aircraft has increased by 0.9% m/m, which was against expectations of +1.7% m/m. Also, the German April IFO business expectations index unexpectedly fell -0.8 to 99.5, weaker than expectations of an increase to 101.2. German Economy Ministry on Monday raised its 2021 German GDP forecast to 3.5% from a 3.0% prediction made in January. Global economic data were mostly negative of gold.

According to the CFTC Commitments of Traders report for the week ended Apr. 20, net long for gold futures gained by 624 contracts to 181498 for the week. Speculative long position rose by 6472 contracts, while shorts also gained by 5848 contracts.

Gold has underlying support from the Covid pandemic, which is dovish for central bank policies. It may trade firm while above the key support level of 20 days EMA of $1760.9 while stiff resistance level is seen around $1791-$1821. Gold is likely to get fresh direction from the Fed meeting later tomorrow.

Dovish Central Bank Policy Stance To Support Precious Metals
 

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Dovish Central Bank Policy Stance To Support Precious Metals

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Disclaimer: Mr. Abhishek Bansal is a new-age, first-generation entrepreneur, and the Founder Chairman of Abans Group, a quintessential diversified business group, providing expertise in Broking Services, Non-Banking Financial Dealings, Financial Services, Agri-Commodity Services, Warehousing, Realty & Infrastructure, Gold Dore Refinery & Manufacturing, and Trading in Metal Products, Pharmaceuticals, Software Development & Wealth Management.
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