Gold: One other Week of Misplaced Glory Than Greenback Events
By Barani Krishnan
Investing.com – It’s another week of losing gold at the expense of a dollar, the strength of which can hardly be explained by the currency deterioration expected from Joe Biden’s proposed $ 2 trillion coronavirus stimulus.
US markets swirled in a sea of red towards the end of Friday, with sad December numbers for everything from retail sales to producer price indexes to manufacturing and consumer sentiment. Joining the sad party was gold, which was supposed to be the “safe haven” – or hedge or panacea, whatever you called it -.
Comex in New York settled Friday’s official session at $ 1,829.90 an ounce, down $ 21.50, or 1.2%. While the reference gold futures contract fell only 0.3% over the course of the week, this loss contributed to the 3.2% decline last week and gave the precious metal its worst two consecutive weeks since November.
Even more notable than the decline in gold was the dollar’s stand-alone party amid the darkness over stocks and commodities.
Allegedly a port in its own right, the exchange rate rose 0.6% against a basket of six other major currencies that day, showing a value of 90.7. The greenback started the year below 90 but could climb above 91 by next week, some forex traders said.
The dollar was an outlier on Friday, despite a fall in bond yields on the benchmark whose resurgence last week had triggered the greenback’s comeback.
But what made it even more bizarre was the dollar’s resistance to the soaring U.S. deficit and debt forecast emerging from the Biden government’s financial plans to fight Covid-19. The $ 1.9 trillion incentive announced by the president-elect on Thursday will be far from the last of the year.
When market support issues like these are heralded by leadership, investor risk appetites typically hit a fever level, sending stocks of commodities, including gold, highs as the dollar plummets.
Still, there could be cause for consternation in the markets on Friday as Wall Street ponders the discussion in Washington’s political grapevine that Biden’s incentive could still face resistance in the Senate despite the simple majority commanding his Democratic Party.
However, the dollar’s performance – even with the likelihood of diminished incentive – is counter to logic, especially when Fed officials spend all week denying any speculation about an imminent reduction in relief or an impending rate hike close to zero.
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