The price of gold fell by as much as 2% on Tuesday and fell below a key support of $ 1,900, due to another snag in negotiations on an economic stimulus (package) to financially help millions of Americans affected by the coronavirus pandemic.
Any fiscal plan that eventually leads to issuing more money will theoretically boost gold, which reached three-week highs above $ 1,939 on Monday, in the expectation that Republican lawmakers, in line with Donald Trump, could eventually reach an agreement with rival Democrats to support 1.8 trillion dollars proposed by the president.
“The stagnation in Washington over the next stimulus package continues to pressure assets like gold that were relying on the weakness in the dollar for the next wave of support”, said David Meger, director of metals trading at High Ridge Futures.
There is another reason for the decline of gold: the dollar.
The Dollar Index, which pits the dollar against six major currencies, rose for the second day in a row on Tuesday and rose 0.5% to 93.55. On Monday, the Dollar Index reached a three-week low of 93.03.
But even before the last snag about the Covid-19 package, the dollar has more or less risen since August, hampering gold’s attempts to return to its $ 2,000 highs.
Despite the gaping US fiscal deficit and record recession, thousands of business closures, historic unemployment and other economic ills forced by the pandemic, the dollar has remained above support zone 93 for most of the past two months – making it one of the most distorted assets.
In Q2 2020, the US economy itself shrank at the fastest pace in history, declining by 31.4 percent as a result of large-scale pandemic lockdowns.