Spot gold retreated again on Tuesday after rising above the $1,880 barrier, hitting as low as $1,866.46 an ounce and briefly holding at the $1,870 barrier, as the dollar’s continued rebound and bitcoin’s continued rise limited gold buying. Meanwhile, the $900bn US rescue package now appears to be more supportive of risk sentiment than of rising inflation risk, so overall it has hit gold assets somewhat. In addition, year-end holiday investors took advantage of the previous rally to start locking in profits.
While many investors see the fiscal-stimulus bill as an important factor in boosting inflation risk, the ensuing risk aversion should not be ignored. Whether gold is ultimately positive or negative is a matter of watching the outcome of the battle. For now, the $900 billion package appears to have had a more significant impact on risk aversion, temporarily limiting gold’s upside.
On the other hand, the simultaneous rise of the dollar and Bitcoin has also hit gold assets to some extent. As bitcoin’s price has climbed this year, institutional investors have been piling in, which has also diverted safe-haven buying from gold. Some analysts even believe that bitcoin, as an emerging asset with a certain safe-haven value, has been greatly boosted by the outbreak.
On the economic front, the latest data from the US Commerce Department showed that the us real GDP in the third quarter ended at an annualised rate of 33.4%, a record high. The Commerce Department said the third-quarter GDP growth reflected efforts to revive business activity that had been delayed or restricted by the outbreak. The economy-wide effort of the epidemic cannot be quantified by the third quarter GDP data because the impact on the source data is widespread and profound and cannot be identified in isolation.
Meanwhile, the emergence of a new strain of the virus in The UK has raised concerns that the vaccine may be ineffective. But at least for now, the distribution of COVID-19 vaccine is continuing and there is no data to show it has expired, so investment sentiment has stabilised again. The UK and the EU have made some positive progress in the brexit negotiations, which has raised the possibility of the eventual orderly exit from the EU and also reduced the risk aversion demand in this market.
In addition to the news, the market continued to focus on the SITUATION in the United States and China. The Trump administration on Monday released a list of companies with military ties to China and Russia that will limit their purchases of a range of American goods and technology.
According to a Commerce Department statement released On Monday, the list includes 58 Chinese and 45 Russian companies to which any company seeking to sell items that could eventually be used for military purposes would need to apply for permission, Bloomberg reported. The most prominent on the list include seven subsidiaries of China Aviation Industry Corp. and Russia’s Foreign Intelligence Service, the SVR, which has been implicated in recent cyber attacks on U.S. federal agencies and companies.
On a technical level, gold has converted into a bullish flag on daily charts, and a breakout to the upside with good volume could signal the start of another bullish run. There are some key upticks to watch out for. First, the current high of $1909.7 an ounce, another above $1966.1 an ounce.
Still, failure to break out of the flag could lead to a return to the recent volatility, with the downside likely to return to around $1810.
Kunal Shah, head of research at Nirmal Bang Commodities in Mumbai, said there had been some profit-taking in the wake of the US stimulus bill and the dollar had risen slightly. He added that gold could correct to $1850-1,860 in the near term as all the positive news has been priced into the market.
Peter Hug, head of trading at Kitco Metals Global, said whether gold could break above $1,850 next week was key to market attention. “The $1,775 level was the floor for last week’s sell-off and we have not breached it,” it said. From a macro point of view, the market is very constructive. From a technical point of view, it may be problematic to break through that level as the $1,850 proved to be strong support. Gold has tested it twice this week. Normally, it would test that level three times before breaking through.”