Global spot gold tumbled on Monday (November 23), hitting as low as $1833.69 / oz. Vaccine positive news continued to improve the risk sentiment in the market, while the latest strong DATA from the United States helped the DOLLAR rebound, further adding to the downward pressure on the gold price. However, the dollar remains focused on post-election developments and the outlook for the US economy, as well as the impact of the second wave on the recovery. On the other hand, the Fed’s stance of keeping interest rates low for an extended period is expected to limit any potential dollar rally.
Today Astrazeneca announced that its vaccine, developed jointly with Oxford University, is between 62% and 90% effective, depending on the dose administered, with an average of 70% effective. While the results are less effective than those of the two US vaccine companies, Astrazeneca points out that its vaccine can be stored in normal refrigerator conditions and will be capable of producing 3 billion doses of coVID-19 by 2021. That means global financial markets have had three consecutive Mondays of positive vaccine news, and risk sentiment continues to improve.
Meanwhile, the latest data released by the US showed that the preliminary READING of Markit manufacturing PMI in November was 56.7, the highest in nearly 74 months. The preliminary Markit services PMI for November came in at 57.7, a new 68-month high. Business activity in both manufacturing and services reached its highest level since March 2015 in November, and the upturn in the economy reflected further strengthening in demand, which in turn encouraged companies to hire workers at the fastest pace since 2009, said IHS Markit chief economist Phil Williamson. However, the surge in demand and hiring has pushed up prices and wages. Average price increases for goods and services are at a record high and supply shortages are more widespread than ever before. Improving economic data again provided support for the dollar, further depressing gold.
The presence of these factors completely outweighs the still high geopolitical risk. Mr Trump has not given up hope of overturning the election and has continued to press his controversial claims of electoral fraud. Mr Biden’s team said Mr Trump’s efforts had been ineffective and that Mr Biden would be sworn in on January 20th.
According to a draft list seen by Reuters, the Trump administration is about to announce that 89 Chinese aerospace and other companies will be placed on a list of companies “linked to military activities,” restricting their purchases of a range of U.S. goods and technology. In response, Chinese Foreign Ministry spokesman Zhao Lijian said China is firmly opposed to the US ‘unprovoked crackdown on Chinese companies and has repeatedly stated its solemn position. What the US has done seriously violates the principles of market competition and international economic and trade rules it has always flaunted, and will surely harm its national interests and its own image.
On a technical level, spot gold has broken through several key levels and started testing the downside path it has had since mid-August, which could open up more downside. However, $1800-1820 still looks like a decent level of support. The case for gold bulls has certainly not gone away, as global interest rates are expected to remain low for many years.
In addition, it is worth noting that gold etfs, which have been crucial to this year’s rally, have seen outflows for at least six days in a row, with holdings down more than 1m ounces so far in November. That puts it on track for its first monthly decline this year. In the week ending November 17, hedge funds placed near their lowest long gold bets in 17 months.
Tai Wong, head of precious metals derivatives trading at BMO Capital Markets, said the good news about the vaccine had raised expectations for a return to normality. “While low interest rates and the arrival of more stimulus will boost gold prices, the short-term upside is under pressure.”
Darius Tabatabai, head of trading at Arion Investment Management, said gold could come under pressure if investors shift money into other assets as the economy recovers.