Stimulus for economy boosts gold prices too

After a weak November, gold once again strengthened this month over varied reasons. Gold recovered more than 5% since slumping to a five-month low on Nov. 30, with November also marking bullion’s worst month in four years, pressured by hopes of a vaccine-fuelled economic recovery.

Gold is revering from one of its most fierce sell-offs ever, after new breakthroughs in COVID-19 vaccines and their possible availability before the year end caused a run on money in safe-havens.

November was the worst month for gold in this year. The yellow metal lost about 6% of its value in November, its most for a month since 2016 and fell into $1,700 territory. Investors have in recent weeks directed money mostly into stock markets and other risk assets such as oil, as those witnessed an epic rally amid the notion that vaccines and therapeutics would soon bring an end to the spread of the corona virus.

But December came in as a surprise for gold. Gold gained more than 1% to a two-week high on Monday, augmented by prospect of fresh fiscal stimulus in the United States. Despite the continued emphasis on risk, gold as a haven is rallying again on talk of a new U.S. Covid-19 stimulus efforts. Monday’s rally in gold was reignited by Congress’ aim to scrape together a corona virus relief package before the end of this week and prevent a lapse of benefits that could send millions of Americans spiralling further into financial peril at the end of the year.

Gold prices resumed their run higher, picking up from last week’s three-day rally, on signs that U.S. lawmakers were closing in on a fiscal deal to keep the government open and continue with pay check protection for millions of Americans stressed by the Covid-19. U.S. lawmakers sought to hammer out an agreement on infusing long-awaited relief through a $908 billion Covid relief package soon.

Lawmakers aim to pass both pandemic aid and spending legislation before the government shuts down on Saturday. They will have to quickly resolve several sticking points to meet the deadline.Democrats, who control the House of Representatives, have backed the plan as the basis for an emergency relief bill as a sustained Covid-19 infection surge stresses hospitals across the country. Republicans, who have a majority in the Senate, have indicated they will support the measure without specifying how much exactly in dollars and cents. Fresh restrictions might also we witnessed.

The bullion king of India remarked that the stimulus plan has helped stabilize the gold market because more money being pumped into the financial system is inflationary.

Gold prices typically rally in any stimulus or monetary expansion exercise.

Any kind of stimulus measure will result in rising inflation. And time and again gold has always been considered as a hedge against inflation. Any such situation will result in a rise in gold prices which has already gained 22% so far this year.

Apart from the stimulus package, important data was also released and many important numbers are yet to come this week. The US payrolls data had mixed statistics. While employment rates improved, there was dip in overall monthly payrolls compared to expectations. Now the falling USD at 90.7 is supporting precious metals. As mentioned last week that gold at $1850-185, a crucial barrier and even in Friday it attempted $1852 and gave up later.  Gold made a good bounce back on Monday, hitting the precise $1865 and MCX above 50,000 in rupee terms. Gold looks positive and traders are still looking for dips to buy.

Furthermore, the US- Sino tiff continued as the United States imposed sanctions and a travel ban on 14 Chinese officials over their alleged role in Beijing’s disqualification of elected opposition legislators in Hong Kong. Meanwhile, Britain was set to become the first country to roll out the Pfizer/BioNTech COVID-19 vaccine this week.

Prithviraj Kothari of RSBL said that the price of gold surges on the basis of uncertainty and the biggest reason while gold sees a spike in price is when the central bank increases its purchase of gold. The uncertainty of the pandemic is not the only reason that has propelled the price of the yellow metal from an unprecedented 40,000 to beyond Rs 57,000 per 10 grams. It should be noted that the COVID-19 is not the only hazard the world will see. Gold prices get impacted by several factors including geopolitical tensions, interest rate movements and change in value of the dollar with respect to other currencies.

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