(Bloomberg) -- Gold continued its strong start to the year as lower U.S. real yields and a weaker dollar combined with surging coronavirus cases to boost demand for the haven asset.
Bullion traded near an eight-week high as U.S. 10-year inflation expectations topped 2% for the first time since 2018 on hopes that monetary stimulus and government aid policies will drive demand in the post-vaccine world. The higher expectations boost gold’s appeal over havens like treasuries, which have seen their inflation-adjusted yields turn negative.
“The reflation element combined with a weaker dollar and lower real yields all point to further short-term gains” for gold, Ole Hansen, head of commodities strategy at Saxo Bank A/S, wrote in a note.
Building on the biggest annual gain in a decade, gold has made a strong start to the new year as virus angst clouds the outlook for the economic recovery. Global infections climbed above 85 million after daily cases in the U.S. soared to a record of nearly 300,000. The variant strain of the coronavirus first identified in the U.K. has been found in New York State, while British Prime Minister Boris Johnson ordered a national lockdown in England.
The somber Covid outlook appears to have revitalized demand for gold from investors seeking havens. Holdings in SPDR Gold Shares, the largest bullion-backed exchange-traded fund, posted the biggest daily inflow since September on Monday, following withdrawals in the last three months of 2020.
Spot gold climbed 0.2% to $1,946.98 an ounce at 1:33 p.m. in London. The metal surged 2.3% on Monday, the most in two months. Silver, platinum and palladium also rose.
Traders also were tracking Tuesday’s runoff elections in Georgia. The U.S. Senate contests will determine whether Democrats have control of Congress to push President-elect Joe Biden’s agenda. That would aid gold, according to Saxo Bank’s Hansen, as the Biden administration would be able to increase spending and boost stimulus.
--With assistance from Ranjeetha Pakiam.
