By Barani Krishnan
Investing.com - Gold prices gained a leg higher on Tuesday, reacting to U.S. Treasury Secretary nominee Janet Yellen’s plans to fight the coronavirus-induced economic crisis with big spending.
Gold for February delivery on New York’s Comex settled up $10.30, or 0.6%, at $1,851.40 per ounce.
The benchmark gold futures contract had been caught in a wave of irrational selling lately, losing 3.5% over the past two weeks, as U.S. bond yields spiked on contrarian bets made by traders against looming multi-trillion dollar stimulus plans.
Yellen, a former chair of the Federal Reserve, said at her Senate confirmation hearing that lawmakers in Congress had to “act big” on stimulus to facilitate economic recovery from the Covid-19 pandemic.
The nominee of President-elect Joe Biden, who begins his four-year term Wednesday, said the longer-term benefits of stimulus outweighed the costs, especially with near-zero interest rates making borrowing super cheap for U.S. business.
“I think there is a consensus now that without further action, we risk a longer more painful recession now and longer-term scoring of the economy later,” Yellen said. “The smartest thing we can do is act big. In the long run I believe the benefits will far outweigh the costs, especially if you care about helping people who have been struggling for a very long time.”
While gold is generally deemed a safe haven, the yellow metal rallied on Tuesday along with an array of risk assets from stocks to oil.
The yield on the benchmark U.S. 10-year Treasury note surrendered an early run higher to show a drop of 5.0 basis points by 3:15 PM ET (20:15 GMT). The drop in yields weighed on the dollar, aiding gold’s climb. The Dollar Index, which stacks the greenback against six competing major currencies, was down 0.3%, holding just under the key 90.5 level.