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Gold Up, Dollar Down

Dollar trades near 2-1/2 year low

Gold jumped above 2% on Tuesday, rebounding from a five-month low as the dollar slid, with U.S. stimulus funds adding to bullion’s appeal as an inflation hedge. Spot gold climbed 2.1% to $1,814.99 per ounce and U.S. gold futures settled up 2.1% at $1,818.90. Although gold plunged to $1,764.29 on Monday, it recaptured the $1,800 level as a result of the ever-weakening dollar trade.

Experts agree that the unwind of the gold trade has run its course and we are likely to see more efforts from the U.S. Congress to support the economy. Making gold more attractive to investors holding other currencies, the dollar fell on expectations of more U.S. stimulus. In remarks released on Monday, Federal Reserve Chair Jerome Powell highlighted challenges of production and mass distribution before the economic impact of a vaccine becomes clear.

Gold, considered a hedge against inflation and currency debasement, has risen over 19% this year , helped by a historically unprecedented stimulus to help economies that took a hit during the coronavirus lockdowns. Analysts say that we’ll see gold prices heading north of $2,000 in 2021. Gold’s actually now in a new regime with vaccines a likely catalyst for higher inflation expectations as the economy recovers, supporting gold longer term, especially amid lower real rates.

The dollar, on the other hand, inched down 0.09% to 91.918, its lowest level in more than two months. It was also close to its weakest in more than two months against the euro. The dollar also took a hit after data released on Wednesday showed that the U.S.’s GDP grew 33.1% quarter-on-quarter during the third quarter, just missing the 33.1% growth in forecasts prepared by Investing.com but unchanged from the second quarter.

The data also showed 778,000 jobless for the past week, higher than the forecast 730,000 claims and the 748,000 claims submitted during the previous week. There were grim warnings that even more job losses could be on the way, with many states imposing restrictive measures to curb the spiking number of COVID-19 cases.

The number of global COVID-19 cases has surpassed 60 million, of which over 12.7 million are U.S. cases, according to Johns Hopkins University data. Positive data for three vaccine candidates’ efficacies, and a smoother transition to the Joe Biden administration in the U.S than appeared to be likely, saw a recent turn towards precious metals.

Although the dollar’s subsequent fall was rapid enough to open the possibility of a rebound in the short term, some investors warned that a longer-term decline could be possible and are already shifting their positions in anticipation of the COVID-19 outbreak waning in 2021.

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