Spot gold retracted about $30 again on Wednesday, touching as low as $1,837.27 an ounce, as positive vaccine news boosted investment sentiment, but new cases in the US continued to climb. The fierce battle between the bulls and the bears comes as markets focus on whether the U.S. can pass a new stimulus package before the end of the year. That would improve risk sentiment further, if at all, but gold’s exposure to the consequent inflation risk would depend on the size of the fiscal stimulus.
Markets still need to keep an eye on the progress of brexit negotiations. Britain and Brussels remain at loggerheads over important differences ahead of an EU summit tomorrow, with a theoretical deadline for brexit negotiations being met. British Prime Minister Boris Johnson will travel to Brussels on Wednesday afternoon local time for a dinner with European Commission President Herman von der Leyen to discuss the trade deal. While some key points of disagreement remain, the market’s performance suggests investors are more likely to expect a last-minute deal.
There has been some positive progress in the US fiscal stimulus measures. Treasury Secretary Steven Mnuchin said in a statement that he proposed a new $916 billion stimulus package to House Speaker Nancy Pelosi, the First action taken by the Trump administration since the election to break the deadlock. House Speaker Nancy Pelosi and Senate Minority Leader Charles Schumer called the bill’s introduction a step forward, but said the benefits cuts were unsatisfactory. For now, the plan’s passage will depend on the attitude of Senate Majority Leader Mitch McConnell, who has not budged but says he wants to make progress.
Ahead of a meeting of the US FDA to review Pfizer’s vaccine, the UK has embarked on a mass vaccination campaign that will provide a model for other countries, including the US, that could show the practicality and potential pitfalls of mass vaccination.
Gold, on the other hand, is also facing safe-haven buying from cryptocurrencies such as Bitcoin. The rise of cryptocurrencies in mainstream financial circles has come at the expense of gold, jpmorgan chase & Co. noted this day. The bank believes the growing acceptance of cryptocurrencies by investors will be a big change for the gold market. Because investors moving even a small fraction of their money out of the gold market into cryptocurrencies would have a big impact on the precious metals market. It’s important to note, though, that j.p. Morgan’s view remains in a minority among major Wall Street banks, but gold bugs should take note.
On a technical level, gold has significant support below 1850, where bears have stopped several times since August before breaking below that level in late November. As gold tries to stabilize above this support, the bulls may still be accumulating strength. Still, gold is below its 50-day moving average, which is slightly lower, suggesting medium-term bearish sentiment remains strong. However, if gold can effectively break that average, it could signal a reversal. In addition, after the MACD forms a “golden fork”, the histogram is expanding, which is usually a bullish signal. These factors suggest that the current investor sentiment is complex.
Lobo Tiggre of Independent Speculator recently said that while gold is unlikely to be bearish, investors should not close their eyes to the possibility of a fiscal and monetary policy reversal, which could be a write off for gold prices. “If those forward monetary policies in support of gold were introduced, what would happen then? The answer is a bear market. “If many of the bullish factors for gold are brought forward, we could see gold lagging for months or even years.”
“Higher risk appetite seems to be gaining ground again, and combined with the vaccine news, this seems to be weighing on gold prices,” said Commerzbank analyst Daniel Briesemann.