On Tuesday (December 29) in the Asian session, the DOLLAR index was under pressure to decline, now at around 90.15; Spot gold rallied abruptly in the short term as it broke through $1,880 an ounce again, hitting a new intraday high of $1,881.94 and recovering more than $10 from its intraday low around $1,871 an ounce. Gold prices rose on the back of a weaker dollar and fresh news of the US fiscal stimulus, with the House of Representatives voting to raise direct individual stimulus payments from $600 to $2,000 as part of the COVID-19 rescue bill. The latest developments in us fiscal stimulus have boosted investor demand for gold, seen as a hedge against inflation that could result from massive stimulus measures.
On The evening of December 28 local time, the Democratic-led House of Representatives voted 275-134 to approve a bill that would increase the new Coronave-relief package for those earning less than $75,000 a year from $600 to $2,000.
The bill will now go to the Republican-controlled Senate, where a two-thirds majority is needed to pass it. Republicans have long argued that raising the handout would increase the deficit, and the bill could stall in the Senate.
House Speaker Nancy Pelosi said the house agreed with the president that a $2,000 check must be sent to American families. The House just passed a cash-out bill, and the Senate should do the same.
US President Donald Trump threatened last week to cut other unnecessary spending if Congress did not raise the amount of bail-out cheques paid to individuals from $600 to $2,000. But a dispute with members of Congress could lead to a government shutdown, and Mr. Trump backed down on Dec. 28.
It should be noted that Last week, Democrats moved to increase stimulus checks after Trump threatened to oppose a $2 trillion epidemic aid and federal funding bill. House Speaker Nancy Pelosi backed Mr. Trump’s proposal at the time and called on Democratic lawmakers to support it. House Democrats tried to pass a bill in a formal session on December 24th that would have raised the $600 per person to $2,000, but republicans blocked it at the time.
Late on The night of December 21 local time, both houses of the US Congress passed a spending package totaling about $2.3 trillion to combat the COVID-19 epidemic. It is one of the largest bills ever passed by the U.S. Congress, including an estimated $900 billion epidemic economic rescue bill and a $1.4 trillion budget bill for fiscal year 2021.
US President Donald Trump on Monday threatened not to sign a new $900bn bailout bill passed by the US Congress. Mr Trump said he would ask Congress to “fix” the bill, increase the size of stimulus checks and eliminate wasteful spending.
Mr Trump has said he will ask Congress to amend the newly passed $900bn New Champions Bailout bill, saying it contains too much foreign aid and not enough for struggling Americans. Mr Trump has asked members of Congress to increase the amount of stimulus checks that most Americans can receive from an “absurdly low” $600 to $2,000, or $4,000 for couples.
However, under intense pressure from members of Congress from both parties, Mr Trump dropped his threat to block the bill. On the evening of December 27 local time, Trump signed a $2.3 trillion COVID-19 bailout and federal government comprehensive spending bundle bill, which includes $900 billion of COVID-19 bailout funds and $1.4 trillion of government spending funds.
The bill is seen by markets as a golden benefit because of the perception that huge government spending will put pressure on the dollar.
Mr Trump said on Monday that the Senate “will start the process” of approving the increase.
Treasury officials said on Monday that checks of $600 per person would begin this week, as previously planned. If Congress increases the amount of the stimulus package, the Treasury will pay compensation to those who have already received checks.
Can gold rise to $1,900? Watch the U.S. Senate move and the dollar move
Gold’s rally from $1,871 an ounce continued on the back of optimism sparked by news of the NOVEL Coronavirus bailout, FXStreet analyst Anil Panchal wrote on Tuesday. The House of Representatives passed a bill to support a $2,000 check. The bill goes to the Senate on Tuesday, where Republicans are likely to block it on the grounds that the budget deficit is expected to grow.
Going forward, Panchal said, in the absence of major data/events, the Senate’s performance on the U.S. stimulus plan will be key to short-term market direction.
Analysts say the bill now going to the Senate will create a political dilemma for Republicans. Many of them had previously opposed exceeding the $600 in individual aid provided under the current bill, partly out of fear of the eventual cost. Raising individual aid to $2,000 would cost about $464 billion.
Senate Majority Leader Mitch McConnell did not say whether the Senate would take up the House bill, vote on another bill to increase individual aid, or ignore the issue.
Senate Minority Leader Chuck Schumer said on Monday: “Every Democratic senator supports the bill, but unfortunately the Republicans are not on our side.”
Panchal said gold would still aim for $1,900 an ounce unless the daily close fell below its uptrend of $1,878 since November 30.
Panchal expects $1,861.82, $1,850.06 and $1,830.79 an ounce to provide intraday support. $1,892.85, $1,912.12 and $1,923.88 would be intraday resistance.
DailyFX analyst Rich Dvorak notes gold has gained about 5 percent since early December, trying to end April’s losing streak. Gold is now below the psychological $1,900 mark, which has so far prevented a sustained rally. However, this technical resistance area may face challenges as short – and medium-term bearish trend lines converge.
“Even without additional stimulus, gold is likely to move higher,” said Jeffrey Halley, senior market analyst at OANDA.
“Investors are quite optimistic about fiscal and monetary support from governments around the world,” UBS analyst Giovanni Staunovo said last week. Gold, considered a hedge against inflation and currency depreciation, is up more than 23% this year, helped by massive stimulus measures.
According to Stephen Innes, chief global market strategist at Axi, gold may need further dollar weakness for gold to climb back above the $1,900 an ounce mark.
“The only thing that can boost gold prices right now is a weaker dollar,” abn Amro analyst Georgette Boele said.