Jakarta, CNBC Indonesia – The world gold price declined in the European trading session Monday (8/3/2021), even though this morning it was quite far above US $ 1,700 / troy ounce. The drop in world gold prices is attractive, because the fiscal stimulus in the United States (US) that brought gold to an all-time high last year, is now invisible (or not yet visible) the effect.
Launching Refinitiv data, at 17:18 WIB, world gold was traded in the range of US $ 1,690.48 / troy ounce, down 0.61% in the spot market. In fact, this morning the precious metal had strengthened 0.77% to US $ 1,713.91 / troy ounce.
The US Senate over the weekend passed a jumbo fiscal stimulus worth US $ 1.9 trillion proposed by the Government under the command of President Joseph ‘Joe’ Biden.
The results of the voting on the stimulus package showed a 50-49 result. Previously, the House of Representatives (DPR) had also approved the stimulus.
After this, the Democratic Party-controlled Congress will approve the package on Tuesday (9/3/2021) local time. It will then be sent to President Biden to sign before the March 14, 2021 deadline to renew the previous aid program.
The value of the stimulus is the second largest in history, slightly below the record high of US $ 2 trillion rolled out in March last year by the US government under 45th President Donald Trump.
Fiscal stimulus was one of the main fuels that brought gold to an all-time high in August. The world gold price record of US $ 2,072.49 / troy ounce was reached on August 7, 2020.
However, this time, gold’s stimulus is still difficult to crawl up, let alone accelerate. There is a “duet of death” from the fundamental side that makes gold powerless.
With the liquidation of the stimulus, it means that the amount of money circulating in the US economy will increase, and in theory the US dollar will weaken.
But in fact, the US dollar index has been racing since last week. The index measuring the strength of the US dollar this afternoon was at 92.136, the highest level since last November 2020.
World gold priced in US dollars will become more expensive for holders of other currencies when the greenback strengthens. So that demand risks decreasing, as well as the price.
In addition, with the disbursement of the stimulus, the pace of US economic recovery will accelerate and inflation is at risk of accelerating. As a result yield bonds (Treasury), continue to climb.
Until this afternoon, yield The 10-year US Treasury is up 4.54 basis points to 1.5994%, still at its highest level in a year, or before the coronavirus was declared a pandemic, and the US central bank (Federal Reserve / The Fed) has yet to cut rates the interest is 0.25%.
Treasury equals gold is a safe asset (safe haven). The difference is that Treasury provides returns (yield) while gold is without yield. Under these conditions, moment yield Treasury continues to climb so it will be more attractive than gold. As a result, an increase yield distress the gold of the world.
Increase yield Treasury triggered by the prospect of US economic recovery and rising inflation has made global financial markets haunted again by tapering (reduction in asset purchase programs or quantitative easing) The Fed that can trigger taper tantrum.
“If the market starts to believe the Fed is losing control of the direction of the bond market, all the issues regarding the taper tantrum will come back,” said Art Cahshin, director of operations at UBS. CNBC International, Friday (26/2/2021).
Taper tantrums have occurred in the 2013-2015 period, when the US dollar index shot up sharply. Gold at that time became one of the victims.
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