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* U.S. gold futures hit record $2034.40/oz
* S&P 500, Dow grind higher on stimulus focus
* Recovery doubts push Treasury yields lower
* Stimulus hopes, falling COVID rates lift oil
* Dollar retreats on stimulus talks
By Herbert Lash
NEW YORK, Aug 4 (Reuters) - Gold surged past the $2,000 mark
on Tuesday after Democrats and the White House appeared closer
to agreement on new stimulus to help the coronavirus-hit economy
while stocks on Wall Street ended higher as investors awaited
more aid from Washington.
Oil prices also rose on the prospect of more stimulus but
Treasury yields fell to their lowest since March on safe-haven
demand and concerns about the ultimate cost of aid.
Gold prices breached the psychological $2,000 level for the
first time, propelled by stimulus concerns.
Increased cyclical and structural allocations to gold are
likely, which will support its price, Mohamed El-Erian, chief
economic adviser at Allianz, told the Reuters Global Markets
Forum.
"The rally is understandable given that investors are
looking for a broader range of risk-mitigating assets now that
yields on government bonds are so low," El-Erian said.
Markets have lost confidence that Congress will approve
enough benefits in a stimulus bill, which will lead the Federal
Reserve to expand its balance sheet, said Lee Ferridge, head of
North America macro strategy for State Street Global Markets.
Increased bond purchases through the Fed's quantitative
easing, or QE program, and the increase in money supply will
ultimately lower the value of the dollar, Ferridge said.
"It all falls back on the Fed, that is what's driving this,"
Ferridge said, pushing gold higher and yields lower at the same
time.
"Gold is outperforming, Treasuries are outperforming," he
said. "It's all about the debasement of the dollar."
The U.S. Senate's top Democrat said a new round of
coronavirus relief was moving in the right direction, though the
two sides remain far apart.
Spot gold prices rose 2.12% to $2,018.54 an ounce.
U.S. gold futures hit a record of $2034.40 and settled
1.7% higher at $2,021.
Bullion has soared 33% so far this year, supported by lower
interest rates and safe-haven buying on concerns Fed monetary
policy and government stimulus are debasing the dollar.
The bond market, which is at loggerheads with equity markets
over stimulus and its role in the economy, is skeptical about
the rebound in economic growth.
"There is a concern about how much the stimulus package will
help the economy, and its cost over time," said Kevin Giddis,
chief fixed income strategist at Raymond James.
Ten-year U.S. Treasury notes slid 5.6 basis
points to yield 0.5069% after earlier trading as low as 0.505%.
MSCI's benchmark for global equity markets
rose 0.71% after earlier hitting a five-month high, less than 4%
from its all-time peak in February. The index was lifted
overnight when stocks rallied in Asia on relatively strong
manufacturing data from around the world reported on Monday.
On Wall Street, the Dow Jones Industrial Average rose
0.62%, the S&P 500 gained 0.36% and the Nasdaq Composite
added 0.35%.
Wall Street shrugged off new upbeat data after a report
showed new orders for U.S.-made goods increased more than
expected in June, suggesting the manufacturing sector was
beginning to claw its way out of the pandemic's deep pit.
The Commerce Department said factory orders rose 6.2%,
boosted by a surge in demand for motor vehicles. Despite the
second straight monthly gain, orders remained well below their
level in February before lockdowns sapped demand.
Shares in Europe slid. The broad pan-regional FTSEurofirst
300 index closed down 0.10% at 1,412.42 after a strong
rally on manufacturing data on Monday.
Disappointing results from Diageo Plc, the world's
largest spirits maker, and German drugs and pesticides group
Bayer, took the shine off growth-linked cyclical
stocks.
BP cut its dividend for the first time in a decade
after a record $6.7 billion second-quarter loss, when the
pandemic hammered fuel demand. Its shares rose 6.5% after BP
unveiled a plan to reduce its oil and gas output by 40% and
boost investments in renewable energy.
Oil prices edged higher, with Brent on track for a
five-month high, on hopes for more stimulus and signs America
may be making progress on controlling the coronavirus spread.
Brent crude futures rose 28 cents to settle at
$44.43 a barrel. U.S. crude futures gain 69 cents to
settle at $41.70 a barrel.
(Reporting by Herbert Lash, additional reporting by Kate Duguid
and Sumita Layek in Bengaluru; Editing by Bernadette Baum and
Tom Brown)
