By Barani Krishnan
Investing.com – The “ka-ching!” hasn’t sounded yet at the U.S. stimulus register for gold. But that didn’t stop longs in yellow metal from booking their first weekly gain since Christmas — although Friday’s volatility likely left them with a smaller profit than expected.
As regular trading on New York’s Comex officially timed out at 1:30 PM ET (18:30 GMT), settled down $9.70, or 0.5%, at 1,856.20. But Friday to Friday, the benchmark gold futures contract was up $26.30, or 1.4%. In the prior two weeks, February gold lost nearly 3.5% combined.
More than the net weekly gain would have been the windfall for the longs who doubled down at the weekend’s low of just under $1,804 for gold. The haven collapsed in the last fortnight, pressured by a surprise hike in U.S. bond yields and — an even weirder — rally in the dollar, despite the currency’s pending debasement in the trillions from the Biden administration’s proposed Covid-19 relief spending.
At the time of writing, yields tied to the benchmark dropped 1.5% on the day but rose 0.3% on the week. The , pit against six other major currencies, was up 0.1% on the day but down 0.6% on the week.
“I think gold is building up energy and likely to make a solid move in the near to intermediate future,” said Eric Scoles, market strategist at Blueline Futures in Chicago. Which direction, he’s unsure.
And this is Scoles’ problem, as well as that of many analysts.
President Joe Biden’s first proposed Covid-19 relief package of $1.9 trillion itself is massive and should do wonders for gold’s proposition as a hedge against dollar debasement. And the president might need a lot more than that to fight the pandemic, given expectations that the U.S. fiscal deficit — now at below $5 trillion — could reach double-digits under his watch.
Treasury Secretary Janet Yellen, at her Senate confirmation hearing this week, also said the White House intended to go “big” on deficit spending to stimulate the economy, and that the benefits of recovery outweigh the costs.
The problem for the administration though is the razor-thin majority of one held by Democrats aligned with Biden in the new U.S. Senate.
Since stimulus measures are an integral part of the U.S. budget, without a super-majority of 67 out of the 100 seats in Senate, they run into a process called “reconciliation” that can only be overridden by a minimum of 60 votes (Democrats and Republicans both have 50 seats in the Senate now, with Vice President Kamala Harris having an additional vote to break the tie).
This reconciliation bit has led to concerns that large stimulus efforts by Biden won’t easily pass muster with the Senate, especially with Republican fiscal hawk Mitch McConnell returning as Minority Leader to make legislation in the upper chamber of Congress as trying for the Democrats as it was when he presided as Majority Leader.
The compromise though would be a string of mid-sized stimulus packages, rather than chunky trillion-dollar installments.
That could mean a slower climb for gold prices rather than a runaway rally many had thought earlier.
Scoles pointed to gold’s hourly chart that showed a mostly range-bound move between $1,826 and $1,827 since Jan 8. This suggested a market in consolidation before a bigger next move, he said.
“In my opinion, the daily chart and the monthly chart both look a bit bearish,” added Scoles. “There is however a notable bullish signal on the weekly chart showing a positive reversal. But I’m somewhat bearish until there is a more significant shift in fundamentals.”
Ed Moya, senior analyst at OANDA in New York, concurred with that view.
“Bets against the greenback remain excessive and the dollar rebound might need to continue before dollar weakness can resume,” said Moya. “Gold appears set to consolidate, but the longer-term bullish outlook should remain intact on ballooning deficits and as inflationary pressures heat up.”