International spot gold on Thursday (December 17) rose strongly, hitting as high as $1896.14 / ounce before a small retreat, now staying near the 1890 pass, around which the bulls and bears began a new round of fighting. Gold has enjoyed strong buying support, largely driven by a sharp fall in the DOLLAR, which has fallen below the 90-dollar index to its lowest level in as many years. Analysts say the growing prospects for a new round of U.S. fiscal stimulus and the fed’s further easing tone are putting more pressure on the dollar.
For now, global risk sentiment is underpinned by optimism over the rollout of vaccines and expectations of a last-minute brexit deal, which for the time being appears to be the only thing holding gold back further.
The EU’s chief Brexit negotiator Michel Barnier has said a deal is “possible” by Friday. “Progress is good, but there are final stumbling blocks,” he stressed. We will only sign agreements that protect the interests and principles of the European Union.” In Britain, the House of Commons begins its Christmas break today. But it also said lawmakers would be recalled immediately if a trade deal was reached.
Meanwhile, Steny Hoyer, the majority leader in the U.S. House of Representatives, said he spoke with House Speaker Nancy Pelosi, who claimed progress on a COVID-19 aid bill. We hope to reach an agreement on epidemic relief within a few hours.
On the economic data front, the day’s major economic data underperformed, temporarily dampened market risk sentiment. Initial claims for state unemployment benefits rose to 885,000 in the week ended December 12, the highest since the week ended October 10. U.S. jobless claims unexpectedly rose last week as COVID-19 continued to weigh on the economy and lawmakers continued to push for a new government aid package, CNBC reported. Meanwhile, the Philadelphia Fed’s manufacturing index recorded 11.1 in December, its lowest level since June. The Philadelphia Fed said companies participating in its Business outlook survey for Manufacturing in December said manufacturing activity in the region continued to grow, but at a less broad pace.
What’s more, the market needs to keep an eye on the recent bitcoin frenzy. After hitting a record high of $20,000 on The 16th, bitcoin’s rally continued to break the $21,000, $22,000 and $23,000 levels.
With bitcoin’s strong performance, bulls see it as a strong alternative to gold as an emerging haven amid the prospect of a weaker dollar and inflation risks. But the speculative fervor is already at an all-time high, raising concerns among some analysts that the surge is unsustainable. But there is no doubt that bitcoin is beginning to be recognized by a growing number of mainstream institutions, and there is a real possibility that it could gradually erode the safe-haven buying of gold.
On a technical level, a positive breakout on the daily chart above resistance near the previous month’s volatile high of $1,875 May have set the stage for further gains. So any meaningful pullback could be seen by the market as a buying opportunity.
Jeff Wright, vice chairman of GoldMining, said one aspect of the Fed’s statement that needs to be looked at is that the Fed will continue to buy bonds until it reaches its employment target, which is good for the gold market in the long run.
“If the central bank continues to tolerate higher inflation, it will further drive down real interest rates and help reduce the opportunity cost of holding gold,” said Ravindra Rao, vice president of commodities at Kotak Securities. “Fundamentally, gold is still pretty strong and if we close above $1,880 today, we could see gold reaching $1,950 before the end of the year.”