Gold prices fell back on Wednesday after rising more than 2% in the previous session as the U.S. Treasury yields recovered and the dollar bounced back. The rollout of massive global stimulus to reduce the economic impact of the COVID-19 pandemic has raised concerns about higher inflation and boosted bond yields. Higher yields lift the opportunity cost of holding the non-yielding yellow metal and push investors towards assets that generate steady dividends or interest.
Spot gold is currently trading at $1,716.07 per ounce as of 0750 GMT.
Ilya Spivak, a currency strategist with DailyFX, said there is an element of corrective price action in today’s trading after a strong rebound in the previous session. He predicted that bullion prices would be in a downward trend in the near-term. Spivak explained that the loose global monetary policy, worldwide vaccine rollouts, the passage of the U.S. stimulus bill and the reopening of economies might force the Federal Reserve to tighten monetary policy to control inflation.
Yesterday, the U.S. House of Representatives voted to advance President Joe Biden’s $1.9 trillion COVID-19 relief bill to a final debate and vote today. The passage of the massive stimulus package would give Biden his first major legislative victory less than two months into his administration. House Majority Leader Steny Hoyer said they would start the deliberation on the bill at 1400 GMT.
Meanwhile, the Organisation for Economic Cooperation and Development (OECD) predicted that the world economy would grow by 5.6% this year and expand by 4.0% next year. It was a sharp increase from its early December forecast of 4.2% this year and 3.7% next year due to the launch of a vast stimulus package in the U.S. and the acceleration of COVID-19 vaccine rollouts in some countries. But the OECD warned that significant risks loom over the improved economic outlook. These include the rate of vaccination, the lifting of restrictions and the control of new coronavirus variants.
In a related development, the holdings of SPDR Gold Trust, the largest gold-backed exchange-traded in the world, dropped yesterday to their lowest level since April 2020.