Gold rises to 50-day MA hurdle as US inflation expectations jump
- Gold continues to cheer the uptick in the US inflation expectations.
- Fed's unlimited QE program lifted inflation expectations on Monday.
- The US dollar is under pressure and could remain on the defensive as Fed's easing could reduce stress in the credit markets.
Gold is extending Monday's price rally in Asia and flashing green for the third straight day as Federal Reserve's open-ended asset purchase program lifted inflation expectations on Monday and is currently weighing over the US dollar.
Runs into 50-day MA
The yellow metal is currently trading near $1,578 per Oz, representing a 1.5% gain on the day, having gained by 3.7% and 1.89% on Monday and Friday, respectively.
Prices tested the 50-day moving average at $1,583 a few minutes before press time.
The Federal Reserve on Monday said it will take stronger actions, including open-ended asset purchases, to support the flow of credit to households and businesses amid the ongoing coronavirus crisis in the global economy.
"The Federal Reserve will continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions," the central bank said.
Immediately after the 12:00 UTC announcement, gold jumped from $1,494 to $1,524 and increased further to end the day at $1,554 alongside a rise in the market-based measures of long term inflation expectations, as pointed out by Charlie Morris, multi-asset fund manager at Atlantic House.
The US 10-year breakeven inflation rate, a measure of inflation expectations over a 10-year horizon, rose to 0.80% from 0.50%, which was the lowest reading since 2009.
The uptick in the market-based measures of inflation expectations is likely keeping gold better bid along with the weakness in the greenback. The dollar index, which tracks the value of the greenback against majors, is currently trading at 101.80, representing a 0.67% drop on the day.
The Fed's unlimited easing is largely aimed at keeping the credit markets from freezing. As a result, the dollar funding stress is likely to ease, drawing offers for the US currency and helping gold rise further during the day ahead.