Gold peaks, more precious as the dollar loses value

SYDNEY (Reuters) – Gold hit record highs on Tuesday before the sheer size of its earnings sparked a profit-taking explosion, which in turn helped the dollar from two-year lows and curbed initial capital gains.

The precious metal had stormed nearly $ 40 more at one point to hit $ 1,980 per ounce XAU =, only by a wave of sales to return it to $ 1,940 in the wild trade.

Gold has still risen more than $ 125 in just over a week as investors bet the Federal Reserve would reaffirm its super easy policies at its meeting this week, and perhaps signal a tolerance for higher inflation in the long run. term.

“Fed officials have made it clear that they will soon make their forward-looking guidance more moderate and results-based,” analysts at TD Securities wrote.

“The president is likely to continue the process of preparing markets for change when he speaks at his press conference.”

A change could be the average inflation target, which would see the Fed aiming to push inflation above its 2% target to offset years of underinjection.

Gold’s pullback took some strength from stocks, but MSCI’s broader index of Asia-Pacific stocks outside of Japan .MIAPJ0000PUS was still up 0.8%.

Japan’s Nikkei .N225 deflated, while Chinese blue chips increased 0.7% .CSI300. E-Mini futures for the S&P 500 ESc1 rose 0.1%, while EUROSTOXX 50 STXEc1 futures added 0.1% and FTSE FFIc1 futures 0.3%.

The Dow .DJI had ended Monday with a 0.43% rise, while the S&P 500 .SPX gained 0.74% and the Nasdaq .IXIC 1.67%.

That rise was led again by tech stocks as investors gambled on the optimistic earnings reports due this week. Analysts also noted that the fall in the dollar was positive given that more than 40% of the S&P 500 earnings come from abroad.

DOLLAR IN REJECTION

There was hope that some kind of stimulus extension could be accomplished as US Senate Republicans rushed to fill out the details of a $ 1 trillion coronavirus aid proposal before the enhanced unemployment benefits expire. on Friday.

The proposal could involve a cut in benefits from $ 600 to $ 200, which would be a major blow to household income and purchasing power.

Aid is desperately needed as 30 million Americans are out of work and states are tightening social restrictions again, a trend that has also dragged down the US dollar.

Alan Ruskin, head of G10 strategy at Deutsche Bank, noted that currencies had been tracking the relative performance of their economies, so higher-ranking economic performance was associated with stronger currencies.

“A clear pattern is how the economies most closely linked to China, including commodity producers as diverse as Australia, Chile and Brazil, have tended to outperform the economies most directly linked to the United States, in particular to its NAFTA trading partners, “said Ruskin.

In fact, the dollar has been falling almost across the board in the past few days, hitting a two-year low on a coin basket at 93,416 before stabilizing at 93,793 = USD.DXY.

The EUR = euro stood at $ 1.1732, having reached its highest level in two years at $ 1.1781, while the dollar touched its lowest level against the Swiss franc since mid-2015 CHF =.

The story was very similar against the Japanese yen as the dollar touched a four-month low at JPY 105.10 = before the last trade at 105.60.

The reversal of the trend in the dollar combined with all the uncertainty about COVID-19 and the prevalence of negative real bond yields to light a fire under precious metals.

Silver XAG = shot as high as $ 26.16 at one point, the highest since April 2013, and a one-third gain in seven sessions.

Oil prices also tend to benefit from the falling dollar, but have been hampered by demand concerns as countries impose more travel restrictions.

Brent LCOc1 crude futures rose 4 cents to $ 43.45 a barrel, while US crude CLc1 fell 9 cents to $ 41.51.