The prices of gold dropped slightly on Monday on news that Japan is planning another COVID-19 stimulus package worth almost $1 trillion. The news boosted both the Japanese stock market and investors’ risk appetite. But the fall of the yellow metal was limited by political tensions in Hong Kong. Overall trading today is expected to be subdued because of public holidays in the U.S. and the UK.
Spot gold was trading at $1,729.30 as of 0921 GMT.
The Japanese government is considering another relief package amounting to $929 billion or more than 100 trillion yen to support businesses negatively impacted by the COVID-19 pandemic. The package, which follows an all-time high 117 trillion-yen spending plan last month, will be funded by a second supplementary budget. This would bring Japan’s spending in response to the pandemic to around 40% of its gross domestic product.
The new package would include 60 trillion yen to expand loan programs to private financial and state-affiliated institutions and 27 trillion yen in the form of capital support. There will also be a 330,000 yen monthly financial support for the unemployed. The Nikkei index rose by 1.7% following the news about this economic stimulus package.
Kyle Rodda, an analyst with IG Markets, commented that the increased risk appetite lowered the interest in the precious metal in the short term. But in the long term, he believes gold may reach above the $1,740-$1,750/an ounce level.
Meanwhile, Hong Kong returned to political uncertainty as thousands of people protested against the plan of the Chinese government to national security laws on the city. The security legislation would authorize Chinese intelligence agencies to set up bases in Hong Kong to deal with subversion, secession and terrorist activities. Robert O’Brien, a White House National Security Adviser, commented that the security legislation threatens the status of Hong Kong as a financial hub and could lead to U.S. sanctions.
In a related development, the U.S. Commodity Futures Trading Commission reported that market speculators have raised their bullish stance in COMEX gold in the week which ended on May 19. Also, the holdings of the world’s largest gold-backed ETF SPDR Gold Trust increased by 0.4% to 1,116.71 tons last Friday.