Spot gold remained low on Thursday, hitting as high as $1,817.85 an ounce, but soon gave up almost all of its gains. Trading was light because of the Thanksgiving holiday in the United States. A modest rally in the DOLLAR against a basket of currencies that has seen optimism dissipate this week has continued to support gold near its 200-day moving average, with short and short term concerns likely to focus investors’ attention on whether the outbreak will worsen over the Thanksgiving holiday. But thin trading over the holiday season could keep investors on the sidelines, although some surprises cannot be ruled out.
Ahead of the Thanksgiving break, the United States reported 2,046 new covid-19 deaths the previous day, the highest increase since early May, according to Data from Johnson Hopkins University. New York reported more than 6,000 new coVID-19 cases in one day, the first in seven months. In Europe, German Chancellor Angela Merkel said Wednesday that Germany’s partial lockdown would last at least until Dec. 20 and could be extended until January.
Initial claims for jobless benefits hit 778,000 last week, data released on Wednesday showed, undercutting a job market recovery amid a rise in novel Coronavirus cases and a rise in corporate restrictions. Fed policy makers discussed how to adjust its asset purchase program to provide more support to the market, and some FOMC participants expect the Fed will eventually extend the maturity of its bond purchases.
The fed minutes reaffirmed three conditions for future rate increases, maintained short dollar positions on ample external liquidity and improved risk sentiment, and estimated the DOLLAR index could slide further towards the psychological 90 level in the coming weeks, said The latest comments from Scotiabank Asia currency strategist David Gaucci.
Technically, gold is still in a familiar trading range without a clear direction, as Wednesday’s cross showed. However, risks remain tilted to the downside and the $1,800 level remains at risk. After breaking below the 200-day moving average of $1,798, selling momentum could accelerate or open the door to testing the May 18 high of $1,765. On the upside, regaining the rally will require first regaining Wednesday’s high of $1,818.
In addition, Bitcoin plunged by more than 10% during the day, from a daily high above $19,000 to below $17,000. In fact, bitcoin’s meteoric rise since September, from around $10,000, has led many institutions to turn to bitcoin, further reducing gold’s safe-haven appeal.
Some believe bitcoin is now a better store of value than gold because it is seen by more and more young people as a safe haven investment, making it far better than gold as the epidemic intensifies in Europe and the US.
‘The gold market has entered a new phase because of the vaccine news,’ said Lachlan Shaw, head of commodities research at National Australia Bank. “It is very difficult for gold to break back above $1,900 and $2,000 an ounce if long-term real US interest rates remain at current levels.”
Bart Melek, global head of strategy at TD Securities, said such pro-stimulus arguments bode well for gold in the long run. “As governor and chair of the Fed, Yellen is a dove,” he said. She advocates spending more when necessary. “If there was ever a time when the government needed more fiscal stimulus, this is it.”