It’s here. The stimulus America has waited three months for.
In the coming days and weeks, we will see how the different markets respond to the Biden administration’s $1.9 trillion aid to vaccinate the country, fund states and businesses, put money into Americans’ pockets and get the jobless back to work.
In the gold market particularly, attention will be on whether the metal reflects the inflation concerns expected hereon.
Touted for decades as a go-to asset whenever there are worries about price pressures, gold has of late been systematically prevented from playing that role by Wall Street banks, hedge funds and other actors that have sold down the metal while pushing up US bond yields and the dollar instead.
Bitcoin, an asset that can barely prove its intrinsic value, has also cropped up as a contrarian trade, often rallying at the expense of gold.
With President Joseph Biden’s American Rescue Plan finally out of the door on Thursday, and checks of $1,400 expected to land in some people's deposit accounts as early as next weekend, an inflation pop is almost certain in the near-term.
In January, US personal income grew 10%, beating forecasts, while consumer spending rose 2.4%, just below expectations, after $600 checks sent out to most Americans by the Trump administration under a previous $900 billion COVID-19 stimulus package.
Despite that, gold prices fell 2.7% in January and continued to slide 6% in February. For March, they have lost another 1% month-to-date.
Bond yields benchmarked to the US 10-year Treasury note meanwhile, rose in that time, hitting pre-pandemic highs on the argument that economic recovery in the coming months could overheat, leading to spiralling inflation, as the Federal Reserve insisted on keeping interest rates at near zero.
The Dollar Index, which should logically tumble in an environment of heightened inflation fears, hit peaks not seen since November after applying the same logic of runaway economic recovery and the greenback’s standing as a safe haven from its reserve currency status.
In Friday’s Asian trading window, both 10-year yields and the greenback flexed their muscles again. Futures of stocks on Wall Street rose too after Thursday’s record highs on the Dow and S&P 500.
Gold was down again, with its spot price, which fund managers rely on for direction more than futures, hovering at just above $1,710 an ounce. At that level, it was down almost 10% on the year and nearly 18% off its August record high of $2,073.
GOLD SHOULD TURN AROUND AS STIMULUS IS MONETIZED
If gold were to turn around—and it should as the $1.9 trillion stimulus is monetized into bonds which will likely drive down the 10-year yield and see real price rises, in everything from gasoline to food, pressure the dollar—a rebound to $1,785 is possible on the spot price.
That target shows on multiple technical charts as a median resistance for gold, were it to attempt a return to the $1,800 berth it lost last month.
Investing.com’s Fibonacci test levels for gold’s upside itself is in a range, from $1743 to $1,761 and $1,789.
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