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Soft Dollar And Expected Stimulus Push Gold To 9-Year Peak

Fiscal Stimulus

EDITOR NOTE: As coronavirus cases surge, the economy grows more uncertain. With more uncertainty in the financial markets, more central bank stimulus can be expected. In the US, a second round of coronavirus stimulus is in the works. The impact this has on currencies and bond yields is negative. Hence, gold just jumped to its 9-year peak. If the COVID situation were under “control,” we’d still have to deal with the damages stemming from massive debt. But it’s not under control, so there’s more damage to come. And more room for gold and silver to rise.

July 21 (Reuters) - Gold rose more than 1% to a nine-year high on Tuesday, propelled by a softer dollar and expectations of more stimulus measures to resuscitate pandemic-hit economies, while silver sprinted past $20 for the first time since September 2016.

Spot gold gained 1.1% to $1,834.80 an ounce by 1217 GMT, having touched $1,841.01 for its highest since September 2011. U.S. gold futures rose 0.8% to $1,831.60.

“Gold is deriving strength from a broadly weaker dollar despite the improving market mood,” said FXTM analyst Lukman Otunuga.

“The fundamental themes weighing on global sentiment remain intact, with rising coronavirus cases in the largest economy in the world fostering a sense of unease.”

The dollar eased 0.1% against major currencies after touching a more than four-month low.

Gold’s advance defied a gain in global equities on the European Union’s 750 billion euro ($857 billion) stimulus plan and hopes for coronavirus vaccines.

Gold is finding support from discussions about new fiscal stimulus, said UBS analyst Giovanni Staunovo.

Widespread stimulus tends to support gold because the metal is widely viewed as a hedge against rising prices and currency debasement. Analysts, however, remain divided on the outlook for inflation.

In the United States, too, congressional Republicans announced plans to seek a further $1 trillion in economic relief.

A surge in coronavirus cases in the United States and globally have stoked doubts about economic recovery, helping gold to gain about 20% this year.

Silver surged 5.2% to $20.94 an ounce after reaching its highest since July 2016 at $21.04.

“Silver is starting to outperform gold here,” said IG Markets analyst Kyle Rodda, pointing to increased appeal for precious metals generally.

“On top of that, there’s likely to be an element of silver catching a bit on a rebound in global industrial activity,” he added.

Palladium jumped 3.5% to $2,125.78 an ounce after touching its highest since April 21.

Platinum rose 2.1% to $861, having earlier touched its highest since March 11.

Originally posted on Reuters

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