Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinWith US markets closed for the MLK Jr holiday, gold rose 0.4% to just under $1,837 in electronic trading on expectations that increased stimulus and a dovish Fed will stoke inflation under Biden, lifting demand for alternative stores of value.

President-elect Joe Biden unveiled a $1.9 trillion stimulus proposal last week to supply a lifeline to individuals and businesses reeling from the resurging pandemic. Also last week, Fed Chair Jerome Powell reaffirmed that the central bank has no plans to reduce monetary easing or raise interest rates anytime soon.

While massive fiscal spending and monetary easing should help to rekindle economic growth, they are also expected to stoke higher priced for goods and services by flooding the economy with cash. Indeed, higher inflation is a goal of the Fed's new policy framework, known as inflation averaging, which lets inflation surge well above 2% for extended periods before rate hikes.

Treasury yields have surged on the rising inflation expectations as investors demand greater returns for tying up their money for long periods. Higher yields can weigh on gold by adding to the opportunity cost for holding the metal instead on bonds as a safe-haven asset.

But in the longer term, the huge increases fiscal spending and accommodative policy stance of the incoming Biden administration are considered bullish for gold in its traditional role as an inflation hedge.