Stimulus talks are still in flux but the vaccine is close to being distributed! Can gold hold its rally under risk differentials?

Spot gold edged higher on Thursday, on track to rebound for a third straight day to as high as $1,843.87 an ounce, as renewed U.S. fiscal stimulus talks and expectations of a solid global recovery pushed the dollar lower and pushed it toward the key 90 level. Further gains will depend on the outcome of a tussle between the risk of inflation from the potential scale of fiscal stimulus and reduced demand for safe havens, which may now be influenced by the distribution of vaccines and the containment effect on the epidemic.

In terms of geopolitical risks, Bloomberg recently wrote that after four years of wrestling with US President Donald Trump, sino-us relations have undergone long-term changes, perhaps permanent changes. Mr. Biden’s election is unlikely to change the overall direction of the relationship, especially as Mr. Biden faces pressure within his own party to stay tough with China. Mr Biden, who has supported engagement with China for decades, attacked Mr Trump’s trade policies as “reckless” on the campaign trail. But the former vice president did not promise to rescind Trump’s punitive tariffs or change the way he deals with Chinese companies such as Huawei Technologies Or Bytedance. Bytedance has a popular video app, TikTok. An increase in u.s.-China tensions in the future could give safe-haven demand another boost.

Meanwhile, brexit headlines continue to be contradictory. On the one hand, both sides say differences remain and France has expressed a tough and uncompromising stance, raising the risk of Britain leaving the EU without a deal. Meanwhile the Irish foreign minister Simon Coveney said today that it was “time to keep calm” and that a deal could be reached in the coming days. British media are reporting that officials in Brussels are urging the COMPLETION of the UK-EU trade agreement by Friday to avoid major disruption when the Brexit transition period ends on December 31. For now, at least, there is no real sign that the talks have broken down (though key issues remain unresolved), with investors tacitating that “no news is good news”.

In terms of the epidemic, although the epidemic situation in many parts of Europe and the United States is still severe, the official distribution of vaccines is approaching, so market fears have been eased. If the Modena vaccine is approved by the U.S. Food and Drug Administration as safe and effective, it could be on the market in the U.S. by mid-December. Pfizer last week applied to the US Food and Drug Administration for emergency use authorization, which could be granted after December 10. U.S. Health Secretary Archar says Pfizer and Merck vaccines could be on the market in the United States before Christmas. In addition, THE UK regulatory body MHRA has already approved the first application for the Pfizer /BioNTech COVID-19 vaccine, which will start to be administered next week. This has led to a significant improvement in investment sentiment.

On the economic front, after yesterday’s disappointing ADP employment data, preliminary data was a strong performer, recording 712,000 in the week to November 28, well below expectations of 775,000. However, initial claims for unemployment benefits in the US fell last week but remain high amid widespread corporate restraint to slow a rise in COVID-19 cases and the lack of additional fiscal stimulus, the agency said.

On a technical note, gold has risen further since trading began today and is close to our long-awaited target of $1,838.10 an ounce, according to Economies.com. Once that level is breached, gold is expected to move further into the $1,870 / oz area. Economies.com expects gold to trade between support at $1818.00 an ounce and resistance at $1855.00.

Aftermarket Outlook:

Taking a longer view, TD strategists said on Wednesday: “The gold rout may be over, leaving fewer long-only traders in the market, but the remaining gold investors are holding above-average positions, suggesting they are more confident traders.” Td securities expects gold to continue to rise through the end of the year, with inflation expectations expected to top $2,000 by 2021.

ThinkMarkets market analyst Fawad Razaqzada said the dollar index remained near its recent lows as the euro rose, helping to support higher gold prices.

Leave a Reply

Your email address will not be published. Required fields are marked *