Gold struggles for traction as dollar holds firm

Gold struggled to gain traction on Wednesday and was stuck below the key $1,900/ounce psychological level, as lack of an agreement on additional U.S. fiscal stimulus helped the dollar stay firm.

Spot gold was steady at $1,895.04 per ounce by 0316 GMT, after declining 1.6% in the previous session.

U.S. gold futures were also unchanged at $1,898.30.

“We saw a strong rise in the dollar and that seems to be the main catalyst (for gold),” said DailyFx currency strategist Ilya Spivak, adding that some optimism over a new U.S. stimulus package had also started to fade.

The dollar index held on to gains after bouncing off a three-week low on Tuesday, also helped by renewed questions over a Covid-19 vaccine. Meanwhile, Asian equities fell.

Hopes for the passage of a new coronavirus relief package faded as U.S. House Speaker Nancy Pelosi rejected a $1.8 trillion relief proposal from the White House, saying it “falls significantly short of what this pandemic and deep recession demand.”

Senate Majority Leader Mitch McConnell said on Tuesday the Republican-led Senate would vote next week on a targeted, $500-billion aid bill, while Democrats hold out for trillions in relief.

Also weighing on gold’s appeal was the International Monetary Fund’s statement that forecasts for the global economy were “somewhat less dire” as wealthy countries and China rebounded more quickly than expected from coronavirus lockdowns.

“The report had led analysts to believe that less stimulus rather than more would be needed to pull out of the recession caused by the pandemic,” Avtar Sandu, a senior commodities manager at Phillip Futures, said in a note.

Gold, considered a hedge against inflation and currency debasement, has gained 25% this year, boosted by massive stimulus measures unveiled globally to cushion the economic fallout from the pandemic.

Silver fell 0.1% to $24.14 per ounce, while platinum rose 0.8% to $871.82 and palladium gained 0.6% to $2,329.45.