US stimulus to boost appeal of gold

PRESIDENT- ELECT Joe Biden is set to release plans for a multitrillion- dollar stimulus package tomorrow, paving the way for an acceleration in inflation. That could boost the appeal of gold, which has been weighed down in recent days by a rebound in the US currency and a surge in 10-year Treasury yields.

Markets appear to have temporarily ignored the prospects for higher inflation and fresh stimulus, according to Margaret Yang, a strategist at DailyFX.

“That means the selloff in gold could be temporary, and the downside may be cushioned by fresh stimulus to be announced by Biden,” she said.

The precious metal has lost ground in 2021 after posting its biggest annual gain in a decade on the back of the coronavirus crisis, vast stimulus, and rising haven demand.

Now, Federal Reserve officials are saying that more fiscal support and the mass distribution of vaccines could lead to a strong US economic recovery in the second half, setting the stage for a discussion about tapering of bond buying before year-end, and even an early rate hike.

“This would be considerably earlier than previously expected, further fuelling the upswing in yields,” Carsten Fritsch, an analyst at Commerzbank AG, wrote in a note. However, it remains to be seen whether early tightening is the majority view of the Fed, he said.

Spot gold rose 1 percent to US$ 1 862,01 an ounce in London following a four-day decline. Silver climbed 2,5 percent, while platinum and palladium both also gained. The Bloomberg Dollar Spot Index fell 0,2 percent

In US politics, House Democrats Monday introduced a resolution to impeach Donald Trump for a second time, setting up a vote this week after the riot at the Capitol.

The president and his deputy, Mike Pence, have agreed to work together for the remainder of their term, according to an administration official, signalling that Trump won’t resign or face removal by his cabinet. Bloomberg.