International spot gold attack on four (Jan. 21), fell after hitting $1875.12 an ounce to $1870 below the threshold, the current rally thwarted by the 1870 mark, at the same time, the bulls are important line intersection, since early August the downlink channel is narrow, show more empty fought, the emergence of the market would probably see a broken soon. Remarkably, Treasury yields were unchanged, and as the dollar retreated, this prompted gold bulls to pile into new long positions, making the intraday momentum a self-fulfilling prophecy. But if Senate Republicans signal that they do not approve of Mr. Biden’s stimulus plan, gold will now be vulnerable to a sharp pullback.
With the Bank of Canada and the European Central Bank taking turns, the easing stance of the world’s major central banks became more evident. The Bank of Canada said yesterday it would keep its benchmark interest rate at 0.25 per cent until 2023. At the same time, the European Central Bank announced the latest interest rate resolution, maintaining the three interest rates unchanged, in line with market expectations. In addition, the ECB reiterated its very accommodative monetary policy stance and kept the duration and size of its asset purchase program unchanged. The reaffirmation of the accommodative stance helped support gold by keeping investors hopeful that inflation risks could rise further.
Meanwhile, optimism about the $1.9 trillion stimulus that Biden will enact when he takes office continues to dominate markets. Kay Van-Petersen, global macro strategist at Saxo Capital Markets, argues that the Democrats’ control of the Senate “not only increases the likelihood of more fiscal [stimulus] but also the extent to which it is likely to happen”.
But OANDA analyst Jeffrey Halley, warned President Joe biden’s spending plans may opposition in the senate, “although we are expectations about biden’s $1.9 trillion stimulus plan and follow-up measures issued by the America’s new President, but there are still a big risk, and financial markets everywhere has totally ignored the risk. And that is that the Republican minority in the United States Senate favors the two-party system.” So in the event of a surprise, gold bears could pounce to break the current jittery trend.
On the other hand, the market is also watching how Biden will respond to the outbreak. Biden will sign an executive order on Thursday directing U.S. government agencies to use the Defense Production Act to increase the supply of a variety of items, including the Novel Coronavirus test, N95 masks and vaccine syringes, the sources said.
“Gold is pulling in two directions as its safe-haven function clashes with its inflation hedge nature,” said analysts at TD Securities. Over the past few months, gold’s trading system has made inflation expectations, rather than nominal interest rates, the main driver of real interest rates. In the past few weeks, however, Treasury supply concerns and a change in tone from the Federal Reserve have led to a sharp rise in the yield curve, exacerbating interest rate volatility, which in turn has turned gold into a safe haven as real interest rates are increasingly driven by expectations of nominal rather than inflation. For now, the rise in interest rates remains contained, sending real interest rates tumbling again and leading to a tug of war between gold and competing investment properties.”
Technically, gold broke through its 200-day moving average, now trading around $1,847, extending its momentum. The 50-day moving average is near $1,960 and the Jan. 12 high was near $1,865. If gold falls below its 200-day moving average in a seesaw, it will have to face the uptrend line it has seen since March last year, currently at around $1,829.
In addition, according to the monitoring data of the world’s eight major gold ETFs from the gold information website www.24K99.com, as of January 20, 2021, the total holdings of the world’s eight major gold ETFs were 2,005.434 tons, a decrease of 1.78 tons compared with the previous trading day.
Edward Moya, senior market analyst at OANDA, noted that many investors are optimistic that Biden can pass other stimulus measures and are expressing optimism that it is a priority. The market will see the Biden administration and the Treasury working well together, providing a lot of stimulus in the first 100 days of the administration, and the current state of the new crown does require more support for the economy, which means the gold bulls will lose power.
“People are optimistic that Biden can pass more stimulus and make it a priority,” said Phillip Streible, chief market strategist at Blue Line Futures. Investors do think Yellen will do more easing down the road and are choosing to rebalance their portfolios. With the dollar index trading in negative territory and the 10-year Treasury note edging lower, we are cautious on gold.”