Gold climbed for a third day as investors weighed the prospects of further U.S. stimulus and the latest reading on inflation.
President Joe Biden plans to sign his $1.9 trillion Covid-19 relief bill on Friday after it cleared its final congressional hurdle. Still, the partisan divide over the bill foreshadows the difficulty Biden will have in enacting the multi-trillion dollar, longer-term economic program he wants later this year.
Bullion’s movements have recently been dictated by the dollar and bond yields, with the latter’s rise to the highest level in a year weighing on demand for the precious metal which doesn’t offer interest. While the roll-out of vaccines has seen diminishing investor interest for the traditional haven, bets on rising inflation provided some support for gold as a hedge. Biden’s economic package may give a huge “tailwind” to gold in the long term, according to Commerzbank AG analyst Carsten Fritsch.
“The inflation risks are growing at the same time, as handing out $1,400 to nearly every American and topping up and extending unemployment benefits are likely to massively fuel consumption,” Fritsch said.
Spot gold rose 0.5% to $1,735.95 an ounce by 11:07 a.m. in London, extending a rebound from a nine-month low touched earlier this week. Platinum climbed 1.5% and palladium also advanced. The Bloomberg Dollar Spot Index dropped 0.3%.
Meanwhile, a key measure of U.S. consumer prices rose less than expected in February as costs of used vehicles, clothing and transportation services declined from a month earlier, suggesting broader inflationary pressures remain tame. This likely eased some concerns over economic overheating, given the sheer size of the overall stimulus package.
Gold will also be closely watched as the European Central Bank holds its monetary policy meeting Thursday followed by a briefing by President Christine Lagarde. The ECB’s forecasts are likely to justify the current stimulus program with a cautious view that envisages no sustained jump in inflation, according to officials with knowledge of the matter.