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Gold Retests $1,900, Silver Soars on Inflation Woes, Weaker US Dollar

December 28, 2020 at 15:08 by Andrew Moran

Gold and silver futures are rising to start the holiday-shortened trading week, buoyed by the potential inflation fallout after President Donald Trump signed the latest round of coronavirus stimulus and relief package. This led to greater risk appetite in the broader financial markets, weakening the greenback and making metal commodities cheaper for foreign investors.

February gold futures rose $13.20, or 0.7%, to $1,896.40 per ounce at 13:43 GMT on Monday on the COMEX division of the New York Mercantile Exchange. Gold prices are coming off a weekly loss of about 0.4%, but they are still up 25% year-to-date.

Silver, the sister commodity to gold, is rallying after the Christmas break. March silver futures surged $0.862, or 3.33%, to $26.77 an ounce. The white metal also suffered a weekly drop of more than 1%, but it still up 50% in the final trading week of 2020.

The equities arena was given a substantial boost on Monday after President Donald Trump announced that he signed a $900 billion coronavirus relief package and a $1.3 trillion government spending plan into law. Despite slamming the sweeping pandemic-aid legislation over the last week, alluding to its egregious contents, he signed the bill and gave Congress a “formal rescission request” redlining parts that his administration deemed “wasteful items.”

Trump said in a statement issued Sunday:

I will sign the omnibus and COVID package with a strong message that makes clear to Congress that wasteful items need to be removed.

Much more money is coming. I will never give up my fight for the American people!

The bill includes $600 direct-income support payments, $300 in enhanced unemployment insurance (UI) benefits for 11 weeks, $248 billion for Paycheck Protection Program (PPP) loans, $25 billion in rental relief, and $30 billion into the “procurement and distribution” of the Pfizer and Moderna COVID-19 vaccines.

Market analysts believe that this could be the last risk point for gold markets, suggesting that 2021 could see a rally for the yellow metal due to inflation fears. Plus, President-Elect Joe Biden and prominent Democratic leaders have promised additional stimulus once he takes office next month.

A lower greenback contributed to gold’s ascent on Monday. The US Dollar Index, which measures the buck against a basket of currencies, tumbled 0.23% to 90.12, from an opening of 90.22. The index slumped 1% last week, and it will finish 2020 down more than 6%. A lower buck is good for dollar-pegged commodities because it makes it cheaper for foreign investors to purchase.

Could gold retest $2,000 next year? With the Federal Reserve unlikely to tighten monetary policy and the US government likely to spend more, gold has all the components in its favor.

In other metal markets, January copper futures tacked on $0.033, or 0.93%, to $3.5955 per pound. January platinum futures gained $22.90, or 2.235%, to $1,051.80 per ounce. January palladium futures soared $122.60, or 5.23%, to $2,468.50 an ounce.

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