Gold shoots up to $ 2,000 as Fed stimulus sinks the dollar

SYDNEY (Reuters) – Gold rocketed to record highs of $ 1,975 on Tuesday, while the US dollar fell to two-year lows as investors betting on the Federal Reserve would reaffirm its super easy political outlook this week, and a tolerance to higher inflation.

The prospect of endless stimulus allowed Asian stocks to shake off concerns about the coronavirus and Sino-US tensions for early gains.

Nations around the world are announcing new travel restrictions amid a new wave of the coronavirus, a setback for hopes of a “V” shaped economic recovery.

However, investors are comfortable with the prospect of even higher fiscal spending and endless cheap liquidity, and Fed President Jerome Powell is expected to sound reassuring after a policy meeting on Wednesday.

“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.

All of which helped MSCI’s broader Asia-Pacific index of stocks outside Japan .MIAPJ0000PUS add 1.2%, while Japan’s Nikkei .N225 rose 0.6% even as the yen rose.

E-Mini futures for the S&P 500 ESc1 gained 0.4%, while EUROSTOXX 50 STXEc1 futures added 0.5%.

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%.

The rise was led again by tech stocks as investors gambled on 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 basket of coins at 93,416 = USD.DXY. In turn, it violated the main board support around 93.96 / 88, a bearish development making its way to at least 93.19 and 92.24.

The EUR = euro rose to $ 1.1766, having reached its highest level since late 2008 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 slipped to a four-month low at JPY 105.10 =.

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.

Gold flew to $ 1,975 an ounce XAU = on Tuesday after rising $ 160 in just six sessions. Silver XAG = gained another 5% to hit $ 25.81, its highest level since April 2013, and a gain of nearly a third in seven sessions. [GOL/]

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

Brent LCOc1 crude futures rose 20 cents to $ 43.61 a barrel, while US crude CLc1 reaffirmed 12 cents to $ 41.72.