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U.S. fiscal stimulus hopes are supporting gold price: TD Securities

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(Kitco News) New hope around the U.S. fiscal stimulus package being passed is helping gold price recover after its last week’s drop below $1,900 an ounce, says TD Securities. “The downtrend is being challenged. News that Mnuchin and Pelosi are inching forward on a new round of fiscal stimulus is breathing life into the reflation trade, supporting equities, gold and precious metals,” according to strategists at TD Securities. “The latest news has turned the tide for inflation expectations and the USD, with renewed dollar weakness on the day helping turn one of golds key drivers back in its favor.” However, it will not be smooth sailing for gold going forward as a possible second COVID-19 wave could create deflationary pressures, the strategists add. “While the recent headwind of fiscal uncertainty has been eased, the other major hurdle to another gold bull run in the near term still remains in the form of deflationary pressure from mounting concerns of a second wave. Nonetheless, the potential for treatments and/or a vaccine can mitigate the building virus fears,” they write. TD Securities believes that gold’s bull market is still intact. “Capital will continue to seek shelter from a prolonged period of negative real rates. For gold bugs, an elevated hurdle rate for CTA liquidations will limit the risk of a large-scale liquidation — the balance of risks is firmly tilted to the upside.”

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