Spot gold rebounded in a volatile session on Wednesday, hitting as high as $1,878.48 an ounce and briefly moving back above the $1,870 mark. Recent bearish sentiment on gold has been driven by the dollar’s strength and the lack of progress on the fiscal stimulus bill, but it appears to have stopped near $1,855, which could help the bulls make a further counterattack. The dollar fell again on the day against a basket of currencies and bitcoin came under pressure to retreat, which helped gold regain buying support.
The U.S. fiscal stimulus has come and gone, with President Donald Trump hinting or refusing to sign a new stimulus bill, calling for a big increase in cash payments, from $600 to $2,000. That has analysts worried that Mr Trump could shock risk sentiment and some investors could cash out if he overturns the congressional bill. At the same time, if Mr Trump does not sign the bill, there could be another brief government shutdown in the final days of the year.
Nancy Pelosi, the Speaker of the House of Representatives, said in a tweet that Republicans would not come up with the amount of stimulus checks Mr Trump wants in the negotiations. She said Democrats were ready to bring Mr Trump’s $2,000 cheque proposal to a vote in the House of Representatives this week.
In terms of Brexit, ITV political editor Robert Peston tweeted that a trade deal was possible on Wednesday. Just hours earlier, Peston had said there was no chance of a deal before Christmas. Earlier, the EU’s chief Brexit negotiator said the BLOC was making a “final push” for a trade deal, although deep differences remain over fishing rights.
On the economic front, the U.S. PCE price index for November was released at an annual rate of 1.1 percent, compared with 1.2 percent expected, underperforming both expectations and expectations. In its latest interest rate decision, the Fed sought to achieve maximum employment and a 2 per cent inflation target over the long term. With inflation persistently below this target, the Fed is committed to a period of moderate inflation above 2 per cent, helping to bring average inflation to 2 per cent.
But initial claims for state unemployment benefits in the week ended December 19 were actually reported at 800.3, expected at 880,000, up from 885,000. Analysts believe the overall number of claims has been on a downward trend since the spring. However, the pace of recovery has slowed in recent months, which is consistent with the renewed deterioration of COVID-19 in the US. However, analysts said the distribution of the vaccine would help contain the spread of the virus and ease economic restrictions, helping to stabilize financial markets. But with distribution and vaccination numbers expected to take several months to reach a certain size, investor risk sentiment is being challenged given the recent rise in economic worries caused by rising unemployment.
On a technical daily chart, gold’s rally this week has been hampered by a pullback at 1900, but it has now held steady for three consecutive sessions at key support 1860, a level that has been a key support or resistance since late September, and is now around the support line (1855) formed by the rally in early December.
So, if the 1855-1860 range can be stabilized in the short term, there is a chance that gold could resume the rally that began in early December, possibly heading back toward targets such as 1885 and 1900. And if the effective break through support area, it may usher in further down space to point to the level of the 20-day average, such as 1840.
Piet Haines Christiansen, chief analyst at Danske Bank in Denmark, said similar news on Tuesday about Brexit and the outbreak failed to drive the market. “Market participants are reluctant to build new positions at this stage, so even if there is a big move in the market, it should be viewed from the perspective of low liquidity,” he told clients.
Michael Langford, head of corporate advisory at AirGuide, said gold will be little changed in the coming weeks as markets have priced in a lot of COVID-19 uncertainty and the U.S. stimulus deal and will need a boost from new uncertainties if it is to rise.