Dollar’s ‘Biden bounce’ takes shine off gold

Gold prices fell for a second week as the dollar rallied after US President-elect Joe Biden, who takes office on Wednesday, proposed a $1.9-trillion stimulus plan. The dollar index made its biggest weekly gain since October, making gold more expensive for holders of other currencies.

“Bouts of dollar strength and the uptick in US yields have triggered short-term corrections,” said Standard Chartered analyst Suki Cooper. “The gold market is caught between longer-term buying on the back of rising inflation expectations given stimulus measures, but selling as the dollar has bounced and concern over QE tapering materialised.”

Benchmark 10-year Treasury yields held close to the 10-month highs they touched earlier in the week.

Gold is normally considered a hedge against the inflation and currency debasement that can result from stimulus, but a recent jump in bond yields has challenged that status as it increases the opportunity cost of holding non-yielding bullion. The afternoon gold fixing on Friday in London was $1,839.00 an ounce, compared with $1,862.90 a week earlier.

On the technical front, gold has solid support around $1,775, and a dip to that level could trigger buying again, said Michael Matousek, head trader at US Global Investors.

Investors are also encouraged by a World Gold Council report suggesting that gold demand in India, the world’s second-biggest consumer, will rebound this year after collapsing in 2020 as the rollout of vaccines pushes life back closer to normal.

Some of the weddings and festive buying that had been postponed because of the pandemic will come back in 2021, and pent-up demand will boost sales, said PR Somasundaram, managing director for India at the London-based council.

Even before the pandemic hit, demand in India had been losing ground as tougher government transparency rules changed buying behaviour. Still, gold’s allure remains strong as Indians have a strong cultural affinity for the metal, Somasundaram said.