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Gold soars past US$2,000, gold up on US government stimulus plan
[NEW YORK] Gold surged past the US$2,000 mark on Tuesday after Democrats and the White House appeared closer to agreement on new stimulus to help the coronavirus-hit economy while stocks on Wall Street ended higher as investors awaited more aid from Washington.
Oil prices also rose on the prospect of more stimulus but Treasury yields fell to their lowest since March on safe-haven demand and concerns about the ultimate cost of aid.
Gold prices breached the psychological US$2,000 level for the first time, propelled by stimulus concerns.
Increased cyclical and structural allocations to gold are likely, which will support its price, Mohamed El-Erian, chief economic adviser at Allianz, told the Reuters Global Markets Forum.
"The rally is understandable given that investors are looking for a broader range of risk-mitigating assets now that yields on government bonds are so low," Mr El-Erian said.
Markets have lost confidence that Congress will approve enough benefits in a stimulus bill, which will lead the Federal Reserve to expand its balance sheet, said Lee Ferridge, head of North America macro strategy for State Street Global Markets.
Increased bond purchases through the Fed's quantitative easing, or QE programme, and the increase in money supply will ultimately lower the value of the dollar, Ferridge said.
"It all falls back on the Fed, that is what's driving this," Mr Ferridge said, pushing gold higher and yields lower at the same time.
"Gold is outperforming, Treasuries are outperforming," he said. "It's all about the debasement of the dollar."
The US Senate's top Democrat said a new round of coronavirus relief was moving in the right direction, though the two sides remain far apart.
Spot gold prices rose 2.12 per cent to US$2,018.54 an ounce. US gold futures hit a record of US$2034.40 and settled 1.7 per cent higher at US$2,021.
Bullion has soared 33 per cent so far this year, supported by lower interest rates and safe-haven buying on concerns Fed monetary policy and government stimulus are debasing the dollar.
The bond market, which is at loggerheads with equity markets over stimulus and its role in the economy, is skeptical about the rebound in economic growth.
"There is a concern about how much the stimulus package will help the economy, and its cost over time," said Kevin Giddis, chief fixed income strategist at Raymond James.