Gold prices have been on a rollercoaster ride this week, with U.S. stimulus news briefly pushing the price above $1,900 an ounce. But gold fell towards $1,850 an ounce on news of a UK mutation coronavirus that sent the dollar soaring. Gold, however, has since bottomed out and finished the week just below $1,880 an ounce. Next week investors will be watching to see if PRESIDENT Trump signs the stimulus package, and will also be keeping an eye on the mutation novel Coronavirus development.
For the week, spot gold closed at $1,878.52 an ounce. For the week, gold hit a high of $1,906.72 and a low of $1,854.60.
The US Congress has passed a fiscal stimulus bill which President Trump has yet to sign
Late on The night of December 21 local time, both houses of the US Congress passed a spending package totaling about $2.3 trillion to combat the COVID-19 epidemic. It is one of the largest bills ever passed by the U.S. Congress, including an estimated $900 billion epidemic economic rescue bill and a $1.4 trillion budget bill for fiscal year 2021.
The news sent gold prices above $1,900 an ounce earlier in the week, also a week’s high.
However, US President Donald Trump on December 22 threatened that he might not sign the new $900bn rescue bill passed by the US Congress. Mr Trump said he would ask Congress to “fix” the bill, increase the size of stimulus checks and eliminate wasteful spending.
Mr Trump has said he will ask Congress to amend the newly passed $900bn New Champions Bailout bill, saying it contains too much foreign aid and not enough for struggling Americans. Mr Trump has asked members of Congress to increase the amount of stimulus checks that most Americans can receive from an “absurdly low” $600 to $2,000, or $4,000 for couples.
Negative developments in the US fiscal stimulus package put some downward pressure on gold prices, which retreated above $1,900 an ounce and briefly approached $1,850 an ounce.
Democrats moved to increase stimulus checks after Trump threatened to oppose $2 trillion in anti-epidemic aid and federal funding bills. House Speaker Nancy Pelosi came out in support of Mr. Trump’s proposal and called on Democratic lawmakers to support it. Democrats in the House of Representatives tried to pass a new bill at a formal meeting on December 24th that would have raised the $600 per person to $2,000, but the bill was blocked by Republicans.
Pelosi said she would reconvene the House of Representatives on December 28 to vote on the $2,000 bill, and that if President Trump is firm, he should appeal to Republicans not to oppose it.
“Democrats in the House and Senate have sought to raise checks several times, but Republicans in both chambers have blocked them repeatedly, having said during our negotiations that checks cannot exceed $600, and now they are blocking a vote,” pelosi said. If the president is serious about direct payments of $2,000, he must call on House Republicans to end their filibuster.”
While the fate of the U.S. fiscal stimulus hangs in the balance, gold prices have rebounded as investors continue to anticipate that the stimulus bill will eventually become law.
“Markets will not take much notice of Trump’s criticisms of the stimulus bill, as a formal veto is considered unlikely [and] the joint stimulus/budget bill will pass with non-veto majorities in both the House and senate,” Adam Crisafulli of Vital Knowledge said in a note. Even if Trump succeeds in vetoing the bill, Biden would become president in 27 days and be ready to sign it.”
“Investors are quite optimistic about fiscal and monetary support from governments around the world,” said UBS analyst Giovanni Staunovo. Gold, considered a hedge against inflation and currency depreciation, is up more than 23% this year, helped by massive stimulus measures.
Ed Mills, an analyst at Raymond James, said: “President Trump’s request to amend the Coronavirus Relief Act to raise individual payments to $2,000 has greatly increased the uncertainty in the coming days, but our base case remains that the bill passed by Congress will become law.”
“Even if Trump refuses to sign the bill, Biden is widely expected to pass it, so we don’t see any downside for gold right now,” said Natixis analyst Bernard Dahdah.
Jigar Trivedi, commodities analyst at Anand Rathi Shares, a Mumbai broker, said: “The market is hoping that the stimulus package will be passed and that should support gold higher.”
Edward Moya, senior market analyst at OANDA, said: “The economic data only reinforces the belief that the economy is slowing, which should help the stimulus talks… Some form of stimulus is highly likely. A slightly weaker dollar is driving gold higher.”
The British mutation roiled the market
News of the British mutation sent the dollar index sharply higher earlier this week, briefly passing the 91 level. The strong dollar was the main reason for gold’s fall from its peak.
On December 22, local time, WORLD Health Organization (WHO) released relevant information on novel Coronavirus reported in the United Kingdom. On 14 December, the United Kingdom reported to WHO that a new novel Coronavirus variant had been discovered through viral gene sequencing. Preliminary analysis showed that the variant was more likely to spread from person to person, with an estimated 40 to 70 percent increase in infectivity and 0.4 in the transmission index between 1.5 and 1.7.
On December 23 local time, The Secretary of State for Health, Matt Hancock, said that following the discovery of a variant irus from a previous novel Coronavirus, another variant irus was found in the UK. The new variant is of “great concern” because it is more transmissible and appears to be more mutated than the previous variant, which is being analysed by UK experts. More areas in the east and southeast of England will be upgraded to phase four, the highest level of COVID-19 containment.
Flights from The UK to Spain, India and Hong Kong have been suspended after the discovery of the novel Coronavirus strain. More than 40 countries around the world have imposed entry bans on the UK.
Novel Coronavirus, a mutation first discovered in the UK, may have spread in the US, CDC said on Dec 22. “Given the continuing travel between the UK and the US and the high prevalence of the novel coronavirus in the UK in the current novel coronavirus epidemic, it is highly likely that the mutation has already spread in the US,” CDC said in a statement.
Germany, Switzerland, Japan and France have all been infected with the novel coronavirus. Novel Coronavirus test negative certificate is required before boarding on all departing flights from the United Kingdom.
Dollar-denominated gold has been hit by concerns over the rapid spread of a new strain of coronavirus in the UK, sending investors seeking a safe haven in the greenback.
“The stronger dollar has limited some of gold’s upward momentum,” said Suki Cooper, an analyst at Standard Chartered bank.
But optimism that the United States will eventually pass an economic stimulus bill has pulled the dollar from its highs, helping to fuel a rebound in gold.
Gold bulls target 1900 level next week
With Mr Trump yet to sign a new stimulus deal, the focus will be on whether he does so next week. Investors will also be interested in news related to the Novel Coronavirus from the UK.
Data next week will be very light, with investors focusing on U.S. consumer confidence on Tuesday and pending home sales on Wednesday.
Gold bulls are still targeting $1,900 an ounce next week. On a seasonal basis, gold tends to do well in late December and early January.
Hussein Sayed, chief market strategist at FXTM, said, “If asset managers want to lock in some of their profits and reduce portfolio risk, gold could see significant inflows in the final days of 2020. “As long as real yields remain negative, we remain bullish on gold, and that is likely to be the case over the next year.” That is why gold may finally hit $1,900 an ounce next week.
Kitco senior analyst Jim Wyckoff said gold bulls have a short-term technical advantage next week. Wyckoff expects gold to hit resistance at $1900.00 an ounce.
Some analysts expect gold to hit a record next year.
Edward Moya, senior market analyst at OANDA, told Kitco News that one of the key levels for gold next year is $2,300. Moya noted that the focus for 2021 will be on vaccinations, but that will not be the reason for gold’s record high.
“Next year will be a very strong year for gold,” Moya said. “We will continue to see unprecedented fiscal and monetary stimulus in the first half of next year.” Moya stressed that inflation is a big concern for next year, which will encourage investors to switch to the safety of gold.