Spot gold fell as low as $1, 828.57 an ounce in European trading on Thursday. On Wednesday, gold suddenly sold off sharply, plunging as much as $40 to a session low of $1,824.95 an ounce.
In terms of direction, gold’s rally against the dollar after Wednesday’s 1 percent drop lost momentum in Europe on Thursday as bearish sentiment allowed dollar bulls to regain their lead. U.S. fiscal stimulus and Brexit talks remain deadlocked, depressing market sentiment and boosting safe-haven demand for the dollar. Investors, meanwhile, remain cautious before the FDA endorses the vaccine.
Jeffrey Sica, founder of Circle Alternative Investments, said: “People expect that some of the confusion caused by the outbreak will subside as some parts of the world start to get vaccinated.” Canada approved Pfizer and BioNTech’s COVID-19 vaccine on Wednesday, a day after the UK became the first Western country to begin mass vaccinations.
Still, gold, seen as a hedge against potential inflation, is up more than 20 per cent this year on hopes of more fiscal stimulus.
In addition to technical breakdowns, optimism over a vaccine-driven global economic recovery in 2021 and large ETF outflows have been the main drivers of the recent fall in gold prices more broadly.
From a technical point of view, with the previous long and short turning point 1850 again lost, the gold market center of gravity is expected to turn downward again. A break through the 1821 low within the week is expected to lead to further tests of the 1800 level. Only a close above 1850 this week would indicate more volatility and rallies ahead.
Now, as the epidemic has grown rapidly beyond its early crisis levels, American lawmakers are trying to agree on new financial support. Investors are now waiting for policy clues from next week’s two-day meeting of the Us Federal Reserve.
Global ETF holdings fell in November for the first time in a year and recorded the second-highest monthly net outflow on record, according to the World Gold Council. Gold fell for the month and recorded its worst monthly performance in four years as positive momentum in global equity markets and rising investor risk appetite made the metal less attractive. At the same time, put positions in the options market have increased.
Global ETF holdings fell 107 tonnes ($6.8 billion, or 2.9 percent of total assets under management, the same below) last month, but net inflows of 916 tonnes ($50.3 billion) in the first 11 months of the year were still far higher than any previous year’s annual record. Total holdings of gold etfs worldwide now stand at 3,793 tons, or about $215 billion.
North American and European gold ETF assets under management have both fallen nearly 3 per cent in the month; Total holdings of Asian funds edged down 0.4 tonnes ($35m, 0.5%), while the rest of the region saw a net outflow of 2 tonnes ($126m, 3.3%).
Despite the fall, net long positions in COMEX gold futures fell only slightly from 766 tonnes in October, the WGC said. It is worth noting that, despite some selling in the gold market, implied volatility, or investors’ expectations of future gold price volatility, has not increased significantly in the gold options market.
But the bearish/bullish bias rose to a one-year high, while the bullish bias fell to its lowest in the past year. That may suggest that while investors don’t see big moves ahead in gold prices, they prefer to increase their exposure to the downside of the metal rather than its upside potential.
With the release of the US election results and positive news on COVID-19 vaccine developments, these two risks that had previously been the focus of the market appear to have come to an end, the report said. The world’s major risk assets rose in response, investors’ demand for safe haven declined, gold ETF showed net outflow, Treasury bond interest rate rose, the stock market bearish bullish ratio in the extreme bull market range, etc.
While the WGC believes that the weak global economy has had a significant negative impact on demand for gold for jewellery and technology, recent data suggest that an improving Chinese economy and the festive season in India have given consumer demand a boost.
Moreover, global central bank demand for gold turned positive in October after shifting to a small net selling in the third quarter for the first time in a decade. The low global interest rate environment is expected to continue, which will help reduce the opportunity cost of holding gold.