By Barani Krishnan
Investing.com - It’s another week of lost luster for gold at the expense of a charging dollar whose strength could barely be explained with the currency debasement expected from President-elect Joe Biden’s proposed $2 trillion coronavirus stimulus.
U.S. markets swirled in a sea of red toward Friday’s close from woeful December numbers for everything from retail sales to producer price index, manufacturing and consumer sentiment. Joining the doleful party was gold, which was supposed to be the “safe-haven” — or hedge or panacea, whatever you called it — from this.
Gold for February delivery on New York’s Comex settled Friday’s official session at $1,829.90 an ounce, down $21.50, or 1.2%. While the benchmark gold futures contract dipped just 0.3% on the week, that loss added to last week’s slide of 3.2% — handing the precious metal its worst two weeks in a row since November.
Even more remarkable than gold’s slide was the dollar’s stand-alone party amid the gloom across stocks and commodities.
Supposedly a haven in its own right, the Dollar Index, pitted against a basket of six other major currencies, rose 0.6% on the day to show a reading of 90.7. The greenback had started the year at below 90 but could head above 91 by next week, some forex dealers said.
The dollar was an outlier on Friday despite a tumble in bond yields associated with the benchmark U.S. 10-year U.S. note, whose resurgence last week had been the catalyst for the greenback’s comeback.
But what made the whole thing even more bizarre was the dollar’s defiance of the rocketing U.S. deficit and debt forecast from the Biden’s administration’s fiscal plans to fight Covid-19. The $1.9 trillion stimulus announced by the president-elect on Thursday isn't expected be the last for the year, by any long shot.
Typically, when market-propping spending like this is announced by leadership, investors’ risk-on appetite reaches a fever-pitch, sending stocks to commodities, including gold, to highs while the dollar plumbs lows.
Still, there might be reason to Friday’s consternation in markets, with Wall Street musing over talk in Washington’s political grapevine that Biden’s stimulus might still meet resistance in the Senate despite the simple majority that his Democrat Party commands.
Yet, the dollar’s performance — even with the likelihood of a reduced stimulus — bucks logic, especially with Federal Reserve officials spending all week to deny any speculation of a tapering soon in relief measures or an imminent hike in interest rates standing at near zero.