Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinGold dipped 0.2% to close under $1,852 as rising import prices and plans for additional fiscal stimulus spurred inflation expectations, lifting bond yields and pressuring demand for the metal.

US Treasury yields renewed their climb after President-elect Joe Biden signaled a new $1.5 trillion stimulus package, including direct payments of $1,400, will be presented to Congress next week. Biden will unveil his proposal in a prime time address tonight.

The new aid comes amidst business closures and layoffs around the country as the pandemic escalates. New jobless claims soared to a five-month near one million last week, with another 285,000 applications filed through a temporary federal-relief program.

The explosion of fiscal spending raises expectations that inflation will rise, perhaps sharply, as the economy gets back on its feet. Rising inflation weighs on bond prices, boosting yields, as investors sell lower-yielding bonds to offset lower real returns, that is, returns above inflation.

Higher yields, in turn, weigh on gold in the short term by increasing the opportunity cost for holding the metal, which offers no yield itself, instead of bonds as a safe-haven asset. In the longer term, however, rising inflation is seen as bullish for gold in its traditional role as an inflation hedge.

Adding to inflation expectations, the cost of imports rose nearly 1% in December, equaling the most in five months, driving mainly by higher prices for oil and industrial supplies.

Further supporting gold's prospects, Fed Chair Jerome Powell said today that the central bank will not reduce its bond buying program, known as quantitative easing, even if inflation spikes higher. Speaking at Princeton, Powell said "the economy is far from our goals" and bond buying will continue at current levels until he sees "clear evidence" of meeting them.

Tantamount to printing money, QE lifts gold by stoking inflation and devaluing the dollar, which makes gold less expensive in other currencies and lifts overseas demand.

The other precious metals were higher, with silver rising 0.9% while platinum and palladium added 1.4% and 1.1%, respectively.

At the Comex close: February gold dipped $3.50 to $1,851.40; March silver rose 23 cents to $25.80; April platinum added $15.70 to $1,126.40; and March palladium picked up $26.20 to $2,423.30 an ounce.