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Gold Settles up after Piercing $1,900 on Dollar, US Stimulus Hopes

CommoditiesDec 17, 2020 03:50PM ET
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By Barani Krishnan

Investing.com - Gold futures briefly returned above the key $1,900 mark on Thursday before settling up but off those highs as the dollar — the contrarian trade to the yellow metal — broke major support.

Strong commitments for more bond-buying by the Federal Reserve on Wednesday and signs that U.S. lawmakers were in final negotiations for a Covid-19 fiscal relief weighed heavily on the Dollar Index, bringing strong bids for gold, which works as a hedge against inflation.

The Dollar Index, which pits the greenback against a basket of six currencies, hovered at 89.7, breaking below its major 90-handle the first time since April 2018.

Gold futures for February delivery on New York’s Comex settled at $1,890.40, up 31.30, or 1.7%.

It earlier scaled $1,901.75, marking the first trade above $1,900 for gold futures since Nov 6, when the yellow metal collapsed in response to news rushes on the 95% efficacy in Pfizer’s coronavirus vaccine. Up until then, gold had mostly held above $1,900 as a safe-haven play against the havoc wrought on the economy by the pandemic.

Months of inconclusive talk between Republican and Democrat lawmakers for a second Covid-19 stimulus also came to bear on gold after the Pfizer (NYSE:PFE) vaccine stories, deepening its selloff. In recent weeks, however, talks have resumed for another Covid-19 stimulus after $3 trillion passed in March, helping gold recover from the near five-month low of $1,767.20 hit in November.

Gold was also bolstered by Wednesday’s announcement by the Federal Reserve buy at least $80 billion per month of Treasury securities and $40 billion per month of agency mortgage-backed securities in a bid to provide maximum employment to Americans and price stability to the economy. U.S. unemployment claims rose for a second week in a row, data showed on Thursday, reinforcing the need for urgent fiscal help.

Gold’s continued climb will depend on the ability of Republicans and Democrats to come true on their word for a Covid-19 deal, after months of pledges and failed negotiations, analysts said.

Marathon talks on the stimulus have continued from Tuesday into Thursday, with all the four key players — House Speaker Nancy Pelosi, Senate Majority Leader Mitch McConnell and their respective seconds in command, Chuck Schumer and Kevin McCarthy — glued in.

All four have expressed strong confidence that a deal is imminent, and that it could include checks in the mail for needy Americans. Pelosi even said a text of the deal might be ready for distribution before the end of Thursday.

Another crash in gold to the low $1,800s, or even deeper, is likely if this round of stimulus talks get botched as well.

Gold Settles up after Piercing $1,900 on Dollar, US Stimulus Hopes
 

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Comments (4)
James Bell
James Bell Dec 17, 2020 12:45PM ET
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So no stimulus means the dollar will rise. No Brexit will also raise the dollar as the pound falls. Gold could drop from here instead of breaking out.
Sol Weinberg
Sol Weinberg Dec 17, 2020 11:05AM ET
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we can all agree that you can use dollars as tissue paper pretty soon
Mosa Mustikka
Mosa Mustikka Dec 17, 2020 11:05AM ET
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Toiletpaper is In bullmarket In covid times.
Sade Ocak
Sade Ocak Dec 17, 2020 10:21AM ET
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The people that write these headlines need to have at least a basic understanding of markets.  Gold's strength has nothing to do with stimulus hopes and everything to do with the USD going down the toilet.
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SunilKumar Dixit
SunilKumarDixit Dec 17, 2020 10:21AM ET
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Sire don't take Sade Ocak and his childish outburst seriously. Some people have their own theory and philosophy. When some people lose in the markets, they can't take the guilt and hit at the mentors.
SunilKumar Dixit
SunilKumarDixit Dec 17, 2020 10:21AM ET
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Sad e Ocak the readers all know Barani Krishnan and his decades of market knowledge that contributes to the real-time market research and analysis. When you say Gold's strength has nothing to do with stimulus hopes, I feel sympathy for your understanding or lack of it. Come on, can't you hear people laughing at you? Deep sympathies 🙏
Barani Krishnan
Barani Krishnan Dec 17, 2020 10:21AM ET
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SunilKumar Dixit  The funny thing is Sade Ocak calls me out for something that he is really guilty of. He never read the story; just took the headline to start his rant. The story clearly had the dollar index in the lead paragraph and the Fed action in the last. Headlines succinctly capture what is in the copy; sometimes, they tend to look-forward to reflect the "news" of the moment -- which in this case is the stimulus. Hence, the decision to have stimulus in the headline as the chatter in Congress was certainly contributing to the weakness in the dollar, which in turn was boosting sentiment in gold. This guy really needs to read more and comment less.
Mosa Mustikka
Mosa Mustikka Dec 17, 2020 10:21AM ET
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Provo
BOB MM
BOB MM Dec 17, 2020 10:21AM ET
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Don't say this, man, he already try his best for these trash articles. If you review his articles, he just repeat some useless words again and again and again. When market down, he wrote thousands of "economy lockdown, virus second wave, unemployment, demand issue", now market up, he only know "stimulus" and "vaccine"......
Sheldon Cooper
Sheldon Cooper Dec 17, 2020 10:16AM ET
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Only dollar down with stimulus
Itachi Uchiha
Itachi Uchiha Dec 17, 2020 10:16AM ET
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That is tricky. If no stimulus, it impacts factors such as jobs, businesses, and renters. dollar would be worse.
Sheldon Cooper
Sheldon Cooper Dec 17, 2020 10:16AM ET
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Itachi Uchiha yes, but I prefeer reality, not bubble, money is not coming to poor people, it’s going to markets weakening dollar
Itachi Uchiha
Itachi Uchiha Dec 17, 2020 10:16AM ET
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What does you mean Money is coming to poor people?
Barani Krishnan
Barani Krishnan Dec 17, 2020 10:16AM ET
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Itachi Uchiha  There will probably be checks in the mail, of at least $600 per person. Not enough to help with present difficulties, but at least something.
 
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