The White House says there’s an “urgency” to passing President Joe Biden’s $1.9 trillion stimulus plan. But the market remains unsure how quickly it would pass, resulting in little relief Monday for the price of gold itself.
After falling some $10 to a session low of $1,846.30, February gold futures on New York’s Comex settled at $1,855.20 — down $1, or 0.1%, on the day. Last week, the benchmark gold futures contract rose more than $26, or 1.4%, after losing almost 3.5% in two previous weeks combined.
“My opinion of this market remains neutral to bearish as the potential head and shoulders chart pattern continues to form on the daily charts and energy is building during consolidation,” said Eric Scoles, market strategist for precious metals at Blueline Futures in Chicago.
“What gold needs to return to bullish activity is a more dramatic macro environment or a return to inflationary fears,” added Scoles. “Until that happens gold will likely remain in this range or even slip down to lower prices.”
In theory, stimulus plans are supportive to gold prices as they create additional money supply that debases the dollar and raises inflationary pressures that investors typically hedge using the yellow metal.
Yet, in recent weeks, gold has acted as anything but the safe haven it’s purported to be, due to an uptick in bond yields and the dollar, which rose despite the new trillions that the Biden administration was expected to add to the U.S. fiscal budget deficit and debt.
Biden’s $1.9 trillion stimulus is expected to easily get through the House of Representatives that’s dominated by Democrats backing him. From there, the bill will get bumped up to the Senate, where his party has an effective majority of just one. There is speculation that the relief plan might get jammed there without adequate support.
The compromise for the administration then might be to propose a few mid-sized relief bills, rather than a chunky, trillion-dollar one. That could mean a slower climb for gold prices rather than a runaway rally returning to record highs above $2,000 an ounce that many anticipated a couple of months back.
Besides worry over the legislative process, gold’s advance on Monday was also hampered by a rebound in bitcoin. The cryptocurrency’s record highs above $40,000 has also drawn institutional buyers, demonstrating the asinine pattern that had developed of late with an investor group gold often relied on.
Beyond Monday, another development that affects gold this week will be the Federal Reserve’s monthly rate decision, followed by Fed Chair Jay Powell’s news conference, on Wednesday.
No change is expected to rates that have stood at near-zero for almost a year now due to the pandemic. But Powell’s words will be examined for even the slightest indication of when recovery is expected to set in, and, along with that, a tapering of stimulus measures.
Over the past fortnight, the Fed chief and his retinue of central bankers have all but yelled from the tree-tops that tapering isn’t happening anytime soon.
But bond traders have been deaf to Powell, pushing yields higher in the hope of proving the Fed chief wrong, and gold bears have been complicit in the act, hammering prices of the yellow metal. Despite last week’s 1.4% rebound, gold futures remain 2.4% down for January from combined losses in the first two weeks of the month.