Good morning traders,

Prices for the precious metal, GOLD, closed at 1,870.19, after placing a high of 1,875.22, and a low of 1,860.19. GOLD extended its gains on Tuesday, on the back of rising expectations that US Congress will agree on a round of spending for the coronavirus pandemic.

A bipartisan fiscal relief plan of $ 908 billion was proposed last week, and this has been under discussion between Democrats and Republicans since the week started. The two parties seemed some distance away from reaching a deal on Tuesday, as Republican Minority leader Mitch McConnell tried to drop the liability protection and state aid from the package, which is something that the Democrats consider to be critically important. However, all these setbacks couldn’t stop gold from achieving gains for the second day straight – this was the fifth gain in the last six days, since the last negative settlement of gold on November 30.

US Congress is expected to vote on a one-week stop-gap funding bill this week, to provide more time to reach a deal on the coronavirus economic relief package. The pressure on politicians to roll out further stimulus measures has has increased, due to the rising number of coronavirus cases.

This year, GOLD prices have surged about 23% after benefiting from its appeal as a hedge against inflation, probably as a result of the unprecedented stimulus unleashed in 2020. In the month of November, the yellow metal lost about 6% of its value, falling into $ 1,700 territory. Then, the vaccine news caused the money flow to shift towards riskier assets and stock markets.

Despite the continuous improvement in risk sentiment, gold was getting support from the talks on the second round of stimulus efforts which, in turn, triggered weakness in the US dollar. On Tuesday, the US dollar Index was close to its lowest level in two and a half years, which ultimately helped its alternative, the yellow metal, to rise in the market.

On the data front, at 01:00 GMT, the Consumer Credit for October came in, showing a drop to 7.2B against the expected 17.6B, weighing on the US dollar and supporting the upward momentum in GOLD. At 16:00 GMT, the NFIB Business Index came in at 101.4, against the expected 102.6 in November, also putting pressure on the US dollar and ultimately boosting the GOLD prices. At 18:30 GMT, the Revised Nonfarm Productivity for the quarter dropped to 4.6%, against the estimated 4.9%, helping the US dollar, and capping further gains in gold prices. The Revised Unit Labor Costs for the quarter came in at -6.6%, against the projected -8.9%, boosting the US dollar and capping any further upside in the GOLD prices. At 20:00 GMT, the IBD/TIPP Economic Optimism figures reflected 49.0 in December, compared to the previous 50.0.

Meanwhile, on late Monday, China’s foreign minister, Wang Yi, said that Beijing was open to restarting its relationship with the US, declaring that the two countries were at a critical historical juncture, after a year of escalating tensions. Wang said that US policy on China needed to return to objectivity and rationality. He also said that both sides should restart the dialogue and get back on the right track, rebuilding mutual trust in the next phase of Sino-US relations. Wang blamed the growing division between the US and China on some Americans with an outdated Cold War mentality and ideological prejudices. These comments from China added to the risk sentiment and capped any further upside in the yellow metal prices on Tuesday.