Gold rangebound despite upcoming Biden administration stimulus announcement

(USAGOLD –1/14/2021) – Gold remained range-bound despite reports circulating that the incoming Biden administration is preparing to unveil a $2 trillion stimulus program – one that is likely to sail through the new Democrat-controlled Congress. Some might think that odd since it was thoughts of stimulus dancing through Wall Street’s mind that sent both gold and stocks soaring at the end of last year. A quick look at the 10-year bond yield – now at 1.1% – explains why things might be different at this juncture. (Please see “The bubble either inflates or bursts…”(1/12/2021) As it stands, gold is down $5 at $1843. Silver is up 13¢ at $25.42. Stocks, now up marginally on the day, seem equally uninspired. It might take a while, as it did early last year, for reality to impose itself on the markets with full force, but Crescat Capital’s Kevin Smith and Tavi Costa see it as inevitable – albeit for different reasons.

“The problem,” they write in a recently released report, “is that money printing married with fiscal spending is crashing head-on with an emerging commodity supply problem that will likely stir up rising inflation which is bearish for both equities and fixed income. Get ready for a volatile 2021, the year of reckoning for twin asset bubbles as the world attempts to emerge from the Covid-19 pandemic. Global central banks added a total of $9.1 trillion of assets to their balance sheets in 2020. To compare, this year’s monetary stimulus was about three times their response to the Global Financial Crisis in 2008. We also saw at least $25 trillion of newly issued debt worldwide while the aggregate value of all negative yielding bonds reached close to $18 trillion in 2020. With this macro backdrop, it is staggering to see a monetary metal like silver still trading sub $30/oz.”

Chart of the Day

bar chart showing central bank net gold sales and purchases 2002-2020

 Click to enlarge

Chart note:  Central banks remained net buyers of gold in 2020, though the pace slowed somewhat. “There are good reasons,” says the World Gold Council in a report issued yesterday, “why central banks continue to favor gold as part of their foreign reserves which, combined with the low interest rate environment, continue to make gold attractive.” The Council expects 2021 to be “not much different” from the year just ended.

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