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Gold Rebounds on US Stimulus Hopes, Capped by Stronger Dollar

January 11, 2021 at 17:19 by Andrew Moran

Gold futures are staging a rebound to kick off the trading week as the yellow metal attempts to post its first weekly gain of 2021. Gold is rallying mostly on renewed fiscal stimulus and relief hopes, triggering inflation concerns. But a strengthening US dollar put a cap on the metals market.

February gold futures surged $14.80, or 0.81%, to $1,850.10 per ounce at 15:55 GMT on Monday on the COMEX division of the New York Mercantile Exchange. Gold prices are coming off a weekly loss of about 2.5%, ending the first trading week of 2021 below the $1,900 level.

Silver, the sister commodity to gold, is soaring on Monday after sliding about 7% last week. March silver futures climbed $0.633, or 2.57%, to $25.27 an ounce.

Although Washington is still seeped in political chaos as Democrats try to impeach President Donald Trump for a second time, investors are more focused on President-Elect Joe Biden and his trifecta of power. Traders are optimistic that his majority control can lead to more stimulus spending as the US economy reels from the coronavirus pandemic.

Following last week’s disastrous December jobs report, the financial markets are begging for more federal government relief. With the Democrats calling the last COVID-19 legislation a “down payment,” it is more than likely that lawmakers will put forward more spending measures.

At the same time, investors are also fearful of the inflationary impact of this deficit-financed spending. There are already signs that inflation is rising, with food prices surging to their highest levels in six years.

A strengthening greenback weighed on gold prices. The US Dollar Index, which measures the buck against a basket of currencies, advanced 0.38% to 90.44, from an opening of 90.03. A stronger buck is bad for dollar-pegged commodities because it makes it more expensive for foreign investors to purchase.

On the data front, according to the Federal Reserve Bank of New York, consumer inflation expectations rose to 3% in December, up from 2.96% in November.

Overall, the resurgence in COVID-19 cases continues to affect the broader economy, with the US averaging more than 250,000 new infections per day. This has resulted in more states imposing lockdowns, and there are concerns that a Biden administration would institute federal mandates to curb the spread of the respiratory illness.

In other metal markets, March copper futures slipped $0.117, or 3.18%, to $3.5565 per pound. March platinum futures plummeted $34.10, or 3.18%, to $1,037.20 an ounce. March palladium futures picked up $5.50, or 0.23%, to $2,370.50 per ounce.

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