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Gold Prices Rise vs. Falling Dollar as Covid Stimulus and 'Fractious Policy' Hit Stocks

GOLD PRICES rose against a falling US Dollar in London trade Wednesday, reaching 1-week highs above $1920 per ounce as global stock markets fell amid fresh Covid-19 lockdowns and restrictions across Europe, plus continued rumors and counter-rumors over US politicians agreeing a new stimulus package ahead of 3 November's White House.
 
"There appears no definite clarity which shorter-term traders can price into the precious metals market," says Singapore brokerage Phillip Futures.
 
"Long term investors have shifted focused on what the November election outcome means for stimulus later, with a Democrat victory seen boosting gold's sentiment with a very large stimulus package."
 
While Democrat Speaker of the House Nancy Pelosi reportedly "made progress" in stimulus talks overnight with Treasury Secretary Steve Mnuchin, Republican Senate majority leader Mitch McConnell advised President Donald Trump against agreeing to any pre-election deal, says the New York Times.
 
With the UK government meantime over-ruling the local mayor of major northern city Manchester yesterday, and imposing its highest "tier 3" anti-Covid restrictions without agreeing a financial aid package, the UK gold price in Pounds per ounce today fell as longer-term interest rates rose, falling back to unchanged for the week so far at £1470.
 
Chart of UK gold prices vs. 10-year Gilt yields. Source: St.Louis Fed
 
Other government bond prices also fell with equities – as did crude oil prices – pushing up 10-year interest rates most notably for Greece (up to 2-week highs at 0.91%), the UK (1-week highs at 0.23%) and the US (3.5-month highs at 0.82%).
 
Negative yields meantime continued for debt from Germany, France, the Netherlands and Switzerland, but Japan's 10-year borrowing rates rose to 2-week highs near 0.03% after turning positive this March for the first time in 14 months.
 
Euro gold edged higher to €1621, but also showed no change for the week to date while Dollar prices rose $25 from Sunday to $1924 per ounce.
 
Unlike in the Eurozone, "The time is not right" for negative interest on overnight rates in the UK, said Bank of England policy-maker Dave Ramsden in a speech today, but "they are certainly in the policy toolbox for potential use in future."
 
The UK government's borrowing costs have now risen 5 basis points since Friday night's downgrading by credit ratings agency Moody's took the world's 5th largest national economy further below the "triple A" rating it lost after the Brexit referendum in 2016.
 
Cutting the UK's sovereign debt rating one notch to Aa3 from Aa2, Moody's pointed to London's worsening public deficits, plus what it called the "diminished quality of the UK's legislative and executive institutions in recent years" as well as "the self-reinforcing combination of low potential growth and high debt in a fractious policy environment [amid] economic, fiscal and social challenges."
 
"I like gold and it has done very well this year, despite the collapse in demand for gold in India," says analyst Christopher Wood to ETMarkets.com.
 
"The reason is the very aggressive, extremely stimulating monetary and fiscal policies announced by the US Fed and the ECB in response to this pandemic."
 

 

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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