How will a Second Stimulus Package Impact Gold?

If you view gold only as a useful metal applied to high-end electronics, or even jewellery, its value would be drastically lower. However, if you view gold as a safeguard against economic uncertainty, all indications point toward gold’s continued rise in value. As Bitcoin continues to supplant gold’s safe-haven role, many are diversifying portfolios with precious metals as a means of sound risk management.

Stimulus Package Impact on Gold

Despite JPMorgan’s long-term prognostication of gold being undermined by Bitcoin, the first stimulus package contributed to gold’s recovery. On Tuesday, it partly recovered from a steep fall on Monday when it lost 4.6%, rising by 0.7% to $1,8750.70 per ounce. As for the US gold futures, it climbed by 1.2% to $1,876.40.

A lingering second stimulus relief bill represents many concerns in one package:

• Its very existence signifies economic recovery uncertainty. Otherwise, it would not be needed.
• Even with the ongoing Bitcoin bull run, people are exercising portfolio diversification with gold representing a traditional safe haven.
• The experimental, fast-tracked mRNA vaccine already yielded severe adverse effects in the first wave of UK’s vaccinations, to the point of the Medical and Healthcare Products Regulatory Agency requiring resuscitation equipment to be present in vaccination facilities.

ADRs – adverse drug reactions – from the vaccine were expected, which is why Pfizer gained legal indemnity protection from lawsuits, both in the UK and the USA. Likewise, AstraZeneca had also been granted a legal shield from vaccine-related liabilities. Only time will tell if these ADRs will be severe enough to overtake the virus toll itself.

Biden Administration Boosts Safe-Haven Assets

Although mass vaccination should provide psychological relief and positive economic impact, stimulus spending still spurs hedging against a weakened dollar and inflation risk. This is why gold and other metals should continue recovery for a while. Currently, silver climbed by 0.9% to $24.28 per ounce, alongside platinum by 1.8% to $881.61, and palladium by 0.7% to $2,460.33.

Overall, as a bet against inflation, gold benefited greatly this year by rising 23% in price, just as many of the top futures trading platforms saw gold futures climb by 21% during the year. As the money supply and debt keep increasing across the world’s economies, this trend is highly likely to follow through into 2021. Furthermore, the Biden administration is expected to play loose with massive budgets, stimulus packages, and international trade deficits.  

This nearly puts gold in the same boat as Bitcoin – short-term volatility with long-term growth.

What do you think will happen to gold in 2021? Let us know in the comments below.