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Gold edges higher as global recession fears persist

Gold prices rose on Tuesday, supported by fears of a global recession and fallout from central banks’ stimulus measures, while an uptick in risk-appetite after a positive report about a potential COVID-19 vaccine limited bullion’s advance.

Spot gold was up 0.2% at $1,734.66 per ounce by 0944 GMT. U.S. gold futures GCv1 rose 0.1% to $1,736.60.

On Monday, gold had slipped from a multi-year peak after drugmaker Moderna said its COVID-19 experimental vaccine showed promising results in an early-stage trial, lifting U.S. stocks and oil prices.

The pandemic, which has battered global growth, has prompted nations to roll out massive stimulus measures to limit economic damage caused by the virus.

Gold tends to benefit from widespread stimulus from central banks because it is widely viewed as a hedge against inflation and currency debasement.

“Right now, market is focused on the aftermath of the big rally in stock markets yesterday that has taken some of the bid out of gold, but the underlying demand has not gone away,” Saxo Bank analyst Ole Hansen said.

“We are looking at weaker economic outlook, massive amount of central bank measures in market and also have the tensions on the geopolitical front which should keep gold prices higher.”

In the latest on damage control, France and Germany proposed a 500 billion euro ($543 billion) Recovery Fund that would offer grants to European Union regions and sectors hit hardest by the virus.

Federal Reserve Chairman Jerome Powell over the weekend said that a U.S. economic recovery could stretch deep into next year. Powell is set to speak before the Senate Banking Committee on Tuesday to discuss how economic rescue efforts are working.

Raising fears of a further deterioration in China-U.S. relations, Nasdaq Inc NDAQ.O is set to unveil new restrictions on initial public offerings, which will make it more difficult for some Chinese companies to list there, sources said.

“Central bank’s worrisome balance sheet expansion is unequivocally one of gold’s primary drivers. And hedging against an escalation in U.S. trade tensions also seems like a great idea,” said Stephen Innes, chief market strategist at financial services firm AxiCorp, in a note.

“With interest rates near 0% global opportunity cost of owning gold remains alternatively attractive to currency hedges as the path of the U.S.-China trade war could be paving the way higher with gold bars”.