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Gold gains with stimulus impasse spooking equity investors

Gold erases weekly loss as stimulus impasse stokes economic concerns.
Image: Bloomberg

Gold rose, erasing a weekly drop, with investors looking for haven assets as slimmer chances of a US stimulus deal raised questions over the economic recovery.

While Republicans and Democrats are closer on a price tag for a stimulus measure — coalescing around $900 billion — they’re hung up on differences over shielding companies from virus-related lawsuits. US equities headed toward their worst week since October after optimism about progress on a relief deal had helped send stock indexes to records.

Bullion’s rise on dimmed stimulus prospects marks a turn from recent weeks, when the outlook for more aid stoked demand for the metal as an inflation hedge. Now, the possibility of a hit to the recovery from the impasse is overriding that bet, fueling demand for gold as a store of value, said Bob Haberkorn at RJO Futures.

The rise in gold reflects “the market interpreting a lower move in the equities if no stimulus deal comes through by the weekend,” Haberkorn, a senior market strategist at RJO, said by phone. “It’s strange that it’s going up when there’s no deal. This looks to me that gold today is acting as a safe-haven as investors are nervous there won’t be a deal probably until the New Year.”

Gold futures for February delivery rose 0.3% to settle at $1,843.60 an ounce on the Comex. The price climbed 0.2% this week.

Spot gold rose 0.2% to $1,839.50 at 2:15 p.m. New York time. Silver, platinum and palladium declined. The Bloomberg Dollar Spot Index gained 0.2%.

Treasury yields declined, providing a boost to non-interest-bearing gold.

The European Union resolved a dispute over its new aid package, unlocking $2.2 trillion, while the European Central Bank upped its campaign to shield the region from a possible double-dip recession with 500 billion euros ($606 billion) more in stimulus.

The ECB moves “should benefit gold as a store of value,” Daniel Briesemann, an analyst with Commerzbank AG, said in a note. “Besides the ultra-loose monetary policy, the equally expansionary fiscal policy should also lend support.”

© 2020 Bloomberg

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