Spot gold gained support on Tuesday (December 15), hitting as high as $1,855.32 an ounce, as bulls tried to stabilize above the $1,850 mark. The current upward momentum will mainly come from THE U.S. fiscal stimulus negotiations, and bulls are expected to receive further boost if enough fiscal stimulus can be launched. Gold will enter its traditionally strong season this week, which runs from mid-December through Valentine’s Day, and the bulls will continue to rally if it can be combined with fiscal stimulus.
Still, the gold market will face several tests this week, including the outbreak situation in Europe and the US, us fiscal stimulus negotiations, Brexit negotiations, Federal Reserve monetary policy and weighty economic data. But taken together, the most consequential and timely event of the week was the Federal Reserve’s monetary policy. Given the current situation, the Fed should be unlikely to undertake additional quantitative easing, but is expected to remain dovish and stress the need for more fiscal support. Another concern is whether the Fed will focus its purchases on longer-dated Treasuries, which would keep the yield curve flat and thus keep the market broadly loose.
Although distribution of vaccines has begun, there is a risk that the epidemic will continue to worsen before mass vaccination due to initial production and transportation problems. London went into lockdown for the third time yesterday. In addition to takeaway and food delivery services, bars and restaurants must be closed, as well as indoor entertainment venues such as theatres, bowling alleys and cinemas. Meanwhile, in the United States, the number of confirmed COVID-19 cases has exceeded 16.94 million, with more than 308,000 deaths. Over the past week, the United States has seen more than 200,000 new confirmed cases in a single day, with record numbers of people hospitalized with COVID-19.
On the other hand, the risks of a no-deal Brexit remain high. British Prime Minister Boris Johnson has told his cabinet that a no-deal Brexit is still the most likely outcome. The current deadline for negotiations expires on Sunday, but economists have not ruled out an extension. The analysis suggests that, with or without a deal, the UK-EU trade relationship will change dramatically. In the absence of a deal, the impact would be greater because British companies would face tariffs when exporting to the EU. This could seriously damage Trade between Britain and Europe.
At the same time, according to Politico, America’s congress negotiators close to finalizing a scale overall spending bill for $1.4 trillion in fiscal 2021, in order to avoid the government itself in a situation of “closed” at midnight on Friday, it will be for a major priority on the legislative agenda the end, and an increase in the outbreak aid bill into the package by the end of the urgency of the legislation plan. The Wall Street Journal reported that U.S. Senate and House of Representatives are close to reaching a deal to break up $160 billion in state and local aid into separate packages, with a view to reaching a deal by the end of the year. Progress on U.S. government spending plans has helped boost demand for gold.
On a technical note, Economies.com says gold is expected to rise in the next few days, with the first test being $1850.00 an ounce. If it breaks that level, gold will continue its bullish trend, with the next target being $1875.00. Once gold falls below $1820.00 an ounce, this will halt the expected rally and lead to further declines, with the first target at $1,806.90 and the lower target at $1,790.70.
In addition, as of December 14, there were 2000.256 tonnes of gold held in eight of the world’s biggest ETFs, down 4.668 tonnes from the previous trading day, according to data from gold information website www.24K99.com, which monitors the world’s eight major gold ETFs.
Samuel Burman, assistant commodity economist at Capital Economics, said: “We expect gold to trade around $1,900 by 2021, as real YIELDS remain low. Nevertheless, we recognize that there are some key downside risks to this forecast. Us nominal yields could surge and investors could step up their selling of safe havens, perhaps because us economic activity is recovering faster than expected.”
Howie Lee, the economist at OCBC Bank, said: “The optimism surrounding the COVID-19 vaccine is likely to outweigh the impact of further fed easing and the near-term fiscal rescue program. But gold is likely to rebound in 2021 when optimism about vaccines fades and investors’ attention shifts back to expectations of higher inflation as the US economy still needs substantial monetary and fiscal stimulus.”