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James Hyerczyk
Gold

Gold futures are trading lower at the mid-session on Friday, but have clawed back enough of its earlier loss to hold on to its weekly gains. Trying to determine a catalyst behind today’s price action is proving to be a difficult task.

It’s easy to see the relationship between the stronger U.S. Dollar and demand for dollar denominated gold, but the relationship between Treasury yields and demand for risky assets seems to have been downplayed today.

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It’s just one day so we don’t see a trend, furthermore, perhaps gold would’ve dropped a lot further if it weren’t for the marginal rise in yields and the earlier sell-off in stocks.

At 19:32 GMT, April Comex gold is trading $1858.70, down $10.60 or -0.57%. This is up from an $1839.70 low.

Traders Watching Washington for Stimulus News

Hopes for further stimulus from the U.S. is being credited for putting gold on track for its first weekly gain in three, but problems arose on Thursday that suggested U.S. President Joe Biden may not get all of his proposed $1.9 trillion coronavirus relief plan despite the Democrats holding control of Congress.

According to CNBC, President Joe Biden’s first COVID-19 package is already facing hurdles in Congress that threaten to force the fledgling administration to curb some of its more progressive aims just one week after the proposal’s debut.

Early critiques from Republican Senators Lisa Murkowski of Alaska and Mitt Romney of Utah, two members of the bipartisan group of senators who crafted the framework for December’s stimulus package, challenged the $1.9 trillion plan.

Both expressed doubts on Wednesday over the need for another bill, especially one with such a price tag, less than one month after Congress passed the $900 billion measure just before the Christmas break.

While criticisms from the GOP were expected, odds the bill would pass unedited grew longer after a report quoted Democratic Senator Joe Manchin of West Virginia disparaging the size of the latest round of proposed stimulus checks.

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Traders Also Monitoring COVID Spread in China

Beijing launched mass COVID-19 testing in some areas on Friday and Shanghai was testing all hospital staff as China battles its worst outbreak of the disease since March, with families over Lunar New Year reunion plans amid new curbs.

Tens of millions of people have been under some kind of lockdown in northern cities amid worries that undetected infections could spread quickly during the Lunar New Year holiday in mid-February.

Euro Zone Business Activity Shrinks

Business activity in the Euro Zone fell to a two-month low in January, preliminary data showed on Friday, on the back of stricter coronavirus-related lockdowns.

Tighter COVID-19 restrictions took a further toll on businesses in January, Chris Williamson, chief business economist at IHS Markit said in a statement.

European Central Bank President Christine Lagarde acknowledged on Thursday that the pandemic still posed “serious risks” to the Euro Zone economy.

Short-Term Outlook

The news on Friday shows there are still a lot of risks to the global economy with China and the Euro Zone sending out warning signals. This is likely to keep gold supported because it means the major central banks will continue to provide monetary help. However, fiscal policy doesn’t seem to have the same juice that it generated from March to August 2020 so gold could have a hard time mounting a short-term rally.

For a look at all of today’s economic events, check out our economic calendar.
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