By Barani Krishnan
Investing.com - A huge rescue plan for the U.S. economy and checks in the mail for average Americans have done for gold what two Fed rate cuts within two weeks couldn’t.
Futures of the yellow metal rose 3% on Tuesday, snapping a five-day losing streak, on a host of stimulus measures aimed at shielding U.S. businesses and families from the economic shutdown forced by the Covid-19 pandemic, which authorities fear could produce a slowdown multiple times worse than the Great Recession.
Gold futures for April delivery on New York’s COMEX settled up $39.30 at $1,525.80 per ounce. It continued to rise in post-settlement trade, gaining $46.80 to $1,533.30 by 3:53 PM ET (19:53 GMT).
Spot gold, which tracks live trades in bullion, was up $17.55 at $1,532.55.
Until Tuesday, gold had fallen non-stop after futures hit seven-year highs above $1,704 last week. On Monday, they settled below the key $1,500 support as investors liquidated their holdings to redeem battered equity portfolios.
The slump in gold had bewildered many investors who had expected the yellow metal to hold up its value as a preferred safe haven as Wall Street suffered its worst week since the financial crisis and the Dow had its biggest one-day fall in points.
Tuesday’s rebound came after U.S. Treasury Secretary Steve Mnuchin said the Trump administration was looking to mail out checks in two weeks to Americans (later reports said late April was more likely).
The administration was also working out a proposed tax holiday package with Democrats in the House of Representatives, Mnuchin said, adding that the Treasury will backstop some $1 trillion in stimulus measures by the Federal Reserve to ensure credit markets and the broader economy do not seize up.
“The Treasury and Fed announcements were pretty much the catalyst for the turnaround in gold prices,” Ed Moya, analyst at online trading platform OANDA, told Investing.com.
“These are massive, massive stimulus measures and if they effectively put a stop to the run on cash, they’ll stop the bleeding on Wall Street and stop people from using their gold holdings as ATMs to cover margins and losses in stocks.”