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Gold is out of favor now, but it might shine later

Gold has seen sluggish trading around $1,731.60/oz on Wednesday March 24 as the dollar is going strong and looking confident. The short-term trading range in the precious metal remains $1,710-1,750/oz, which makes perfect sense. Investors have no interest in gold as a defensive asset even in case of global sell-offs, since the dollar is steady and there is a confident policy in place to stimulate the US economy.

However, it is precisely this stimulatory policy, which, further down the road, could turn into an upside factor driving the price of gold. Concerns about rising US inflation and global fiscal stimulus, which would require printing additional money, could put the dollar under heavy pressure. The Biden administration has already rolled out a $1.9 trln stimulus package, and it could be followed by another one worth as much as $3 trln.

The US has no money problems – since the printing press can be fired up to provide as much as needed. But an uptick in money supply will accelerate the consumer price index and force the dollar into devaluation. This is what is theoretically capable of providing gold with robust support and pushing it in the long term up to $2,000/oz.

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