On Monday, gold prices dropped to their lowest level in six weeks earlier in the session but firmed as the prospects of massive federal COVID-19 relief aid in the U.S. offset the impact of the stronger U.S. dollar and higher U.S. Treasury yields. The greenback climbed close to a four-week high against a basket of rival currencies that made the bullion more expensive for investors using other currencies. Last week, Treasury yields jumped to a 10-month peak (GLD, UUP, TLT).

Spot gold is currently trading at $1,835.72 per ounce as of 0811 GMT.

The good news for the yellow metal is U.S. President-elect Joe Biden’s proposal to roll out a $1.9 trillion coronavirus stimulus package to kick start the economy. It stabilized the demand for gold since it is often used as a hedge against currency debasement and inflation, which are the likely result of a large fiscal stimulus.

Phillip Futures analysts noted that the impact of the U.S. dollar and Treasury yields on gold prices would only be short-term. The anticipated increase in the inflation rate due to the massive fiscal stimulus will benefit the precious metal. The analysts maintain a long-term bullish stance because the greenback is likely to be structurally weak over the long term. Axi’s chief global market strategist Stephen Innes agreed that the gold market remains relatively supported.

On the world economy, retail sales in the U.S. slipped for the third consecutive month in December. But producer prices improved slightly, indicating that the expected increase in the inflation rate would not have a significant negative impact on economic recovery. In China, policy stimulus and higher demand in the local and foreign markets boosted economic recovery in the fourth quarter of 2020. It indicates that the second-largest economy in the world will have a strong performance in 2021.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, went up by 1.4% on Friday on 1,177.63 tons. Also, market speculators lowered their bullish stance in COMEX gold contracts for the week that ended on January 12.

In physical trading, gold prices in China increased slightly last week as demand grew ahead of the Chinese New Year.