Gold broke solidly with increases of 1.41% on the day

Pepperstone, a broker specializing in financial markets access, thinks that Gold has been bullish as a hedge against the fiscal deficit. On the other hand, fiat currency debasement and possible inflation have supported precious metal prices. 

The yellow metal now closed the trading day 1.41 % higher and pushed back through the psychological $1,700 level once again. 

Chris Weston, head of Pepperstone, states that the critical level to watch in the gold market is a breach of $ 1,738 an ounce. According to him, client interest will ramp up on a trading break of $ 1,738. 

From a technical perspective, positioning and sentiment are in no way euphoric and holds in quite a neutral position, Weston clarified. He noted that on the downside, a break below $ 1,678 could indicate a move to $ 1,638 an ounce.

US stimulus measures are supporting the yellow metal

The US gets closer to the path of Japan, and it’s being bullish for Gold. Weston stated that the Federal Reserve would need to do more and bond yields would stay low. 

One key driver for Gold is the idea of Japanification of the US, meaning that the closer the US gets to the path of Japan, the more bullish the case for Gold gets, the report stated. There is already a discussion as to the benefits of the Federal Reserve adopting a negative fed funds rate. Even though it would require a legal change to the Fed act.

According to Weston, the US Treasury Department borrowed $ 2.999 trillion this quarter. This was to fund US fiscal measures is a staggering amount to raise from the bond market. It is six times more than the previous record in 2008. Gold traders consider how efficiently the private sector absorbs this level of debt, and if it causes gyrations in the bond market. 

Stimulus measures to prevent a depression does not create productivity or boost investment. Government debt to GDP is going to be nearer to 130 % in 2020. It puts the US on a similar trajectory as Japan, Weston stated.

It is the source of debates about inflation versus deflation. Gold is an excellent hedge in this environment of the coronavirus and post-coronavirus. It’s a hedge against the fiscal shortage, and one day perhaps it will be a hedge against inflation, said the head of Pepperstone.