International spot gold traded in a tight range as high as $1,862.92 an ounce on Wednesday, with bulls now trying to get back above the $1,860 mark to set the stage for a further rally. Gold remains well supported as a safe haven amid the current epidemic and political instability, although massive fiscal stimulus appears to be on the way, keeping bullion investors cautious. In the longer term, gold will experience a multi-year bull market, largely supported by the falling dollar, but record global debt and loose monetary policy further ensure that gold will reprice in response to the dollar’s decline.
In the latest news, the Dutch government has extended its blockade against the disease by three weeks, and German Chancellor Angela Merkel warned that the strict blockade could remain in place for another eight to ten weeks. The outbreak has also worsened in Asia, with Japan declaring a “soft” state of emergency in Tokyo and surrounding areas last week. In France, where the rollout has been slow and where the anti-vaccine movement is gaining ground, political parties in Germany are debating Berlin’s decision to entrust the procurement of the jab to the European Commission. The rapid spread of the mutated virus around the world continues to test the speed and effectiveness of the new crown vaccine, keeping risk aversion in the market strong.
The political situation remains tense as investors continue to watch for a second impeachment vote against President Trump in the U.S. House of Representatives during the day. That would make Mr Trump the first US president to face impeachment twice. It’s also important to keep in mind that once the House of Representatives passes the bill, the next step will be the Senate vote, which has a higher threshold than the two-thirds majority required in the House of Representatives. And watch out for a potential vote later to bar Mr. Trump from holding public office again.
With the market still focused on the possibility of a trillion-dollar fiscal stimulus from Joe Biden, and the subsequent boost in risk sentiment and inflation risks, both bulls and bears will focus on which will take the lead, which will have a direct impact on the future direction of gold.
Technically, gold has returned to the downtrend that started in early August, and another breakout will point us in the direction of the next move. A break below the lower orbit will signal further declines, with another test of 1817 or even a fall to 1800, 1765 and other levels not ruled out. However, if the rally breaks the recent high of 1864 and stabilizes, the market is expected to challenge the 1880-1900 area.
In addition, according to the monitoring data of the world’s eight major gold ETFs on the gold information website www.24K99.com, as of January 12, 2020, the total holding of the world’s eight major gold ETFs was 2014.337 tons, an increase of 0.69 tons compared with the previous trading day. From here, we can see that the performance of supply and demand is expected to provide some support for gold. Conditions in the mining sector suggest there may be little prospect of a big increase in gold supply, which could help prices rise further.
Carsten Fritsch, an analyst at Commerzbank, said bond yields remained a “watchword” for the gold market in the short term. “The higher bond yields go, the less attractive gold becomes.”
Rhona O’Connell, head of market analysis at Stonex, said gold’s performance over the past few sessions had been largely a technical sell-off. “The speed with which gold has moved down suggests that stops have been triggered and momentum trades have taken place.”