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·         Gold prices rose on Wednesday as expectations for a massive U.S. stimulus to help the world’s largest economy recover from the coronavirus jolt bolstered bullion’s appeal as an inflation hedge and pressured the dollar.

·         Spot gold above $1850 hit $1857 and U.S. gold futures rose around $1,856.

·         Janet Yellen, U.S. President-elect Joe Biden’s Treasury Secretary nominee, at her confirmation hearing on Tuesday urged lawmakers to “act big” on coronavirus relief spending, adding that the benefits outweigh the expenses of a higher debt burden.

·         “Given the very dovish approach from Yellen as well as Biden’s stance towards fiscal stimulus, gold is responding to the idea of higher inflation expectations,” said Howie Lee, an economist at OCBC Bank.

 

Although in the near term, gains in gold will be limited due to higher yields and some dollar strength, he added.

 

“Gold at $2,000 is still achievable, probably by the mid of second quarter, when a good amount of people get inoculated and there is so much cash in the system with demand almost coming back to normal, people will start looking at inflation very closely,” Lee said.

 

·         The dollar index eased further from a four-week high hit earlier in the week, while most U.S. Treasury yields fell after Yellen said that tax cuts enacted in 2017 for large corporations should be repealed.

·         Lower Treasury yields reduce the opportunity cost of holding non-yielding bullion.

·         Biden will be sworn into office on Wednesday and investors will be focused on his $1.9 trillion stimulus package plan to boost the economy and speed up the vaccine distribution against Covid-19, which has claimed 400,000 deaths in the country.

·         Bullion is considered a hedge against inflation and currency debasement that can result from widespread stimulus.

 

·         Gold buyers testing the waters in search of a potential push to the upside

Gold trades up by 0.8% on the day

Price is trading closer to $1,855 currently as gold buyers are starting to try and push things in their favour a little in trading today.

Of note, we are seeing price move back above the 200-day moving average (blue line) @ $1,845.43 as buyers are also seizing near-term control now:

The near-term chart reveals that gold is pushing back above its 200-hour moving average (blue line) as well and that shifts the near-term bias to being more bullish.

However, I would still argue that price action remains caught in the broader consolidation range around $1,830 to $1,860-63 and the upper end of that band is still the key resistance region that gold buyers will have to breach to solidify any potential breakout.

The slightly weaker dollar today also plays into gold's favour although one of the key factors driving the upside push on the day remains that of flagging real yields:

As such, buyers are starting to test the waters again for a potential push higher but there is still more work to do in order to solidify that momentum as evident by the technical picture highlighted above.

 

Reference: CNBC, ForexLive