Spot gold bounced slightly above the $1,855 an ounce mark in European markets on Thursday, but its slide this week on vaccine news continued. Investors are still digesting the coVID-19 news, but sentiment has shifted from initial optimism to more caution with multiple risk factors remaining.
In fact, the day risk aversion is rising, coVID-19 worsening “limelight” gradually overshadowed the successful vaccine development news. Wall Street suffered a slump yesterday, with the Dow dropping more than 1 per cent. European markets also opened lower today. The Pan-European 600 index, which tracks European stocks, fell 0.8 percent in early trading, a sign investors were jittery during the session.
The worsening coVID-19 outbreak has been led by the US, with Johns Hopkins University yesterday reporting more than 250,000 deaths and more than 11m confirmed cases, with more than 76,000 coVID-19 patients still hospitalized. New York has announced temporary school closures, with infection rates at their highest level since the spring.
Stephen Innes, chief global market strategist at Axi, said the decision to close classes in New York and switch back to distance learning had taken markets by surprise. “The rolling average of positive seven-day test rates in New York reached a 3 per cent safety threshold, triggering school system closures and reigniting fears of a lockdown.”
Vaccine hopes have clearly supported the market over the past two weeks, but Innes worries that the crisis will continue to escalate, especially around Thanksgiving, “as investors become increasingly concerned about the economic damage that has been done and what the consequences will be as they await the launch of the vaccine. Although the vaccine did provide light at the end of the tunnel, it became more spongy and longer. I’m no medical expert, but statistically speaking, the third wave in the US is likely to get worse. “
Jim Reid, of Deutsche Bank, said: “Both the outlook and the market are now linked to vaccines and viruses. Risky assets actually started to slide late in the US session and closed at their lows (the S&P 500 was down 1.16%), largely due to the closure of schools in New York City after a coronavirus infection rate rose by more than 3%. In terms of industry movements, almost all sectors of the U.S. stock market ended lower, with the exception of the automotive sector (up 1.14 per cent), with losses mainly coming from energy (-2.88 per cent) and utilities (-1.94 per cent).”
The epidemic has worsened in other countries around the world. Japan has reported a record number of confirmed cases, including a peak in infections in Tokyo. India has reported nearly 9 million cumulative cases.
Ms lagarde days in Europe, the European central bank President, warned the eu lawmakers outbreak of the second wave of the new champions are cause significant damage to the economy of the euro area, “overall, infected the eurozone economy is expected to increase rapidly and the corresponding containment measures, the recent economic outlook constitute a significant downside risks.”
She called on EU leaders to reach a swift agreement on a recovery fund. “The next generation EU recovery fund must be operational immediately. The additional resources of the programme could facilitate an expansionary fiscal policy, particularly in eurozone countries where fiscal space is limited.”
On the outlook for the eurozone economy, she stressed: “So far, government support measures, particularly short-term work schemes, have protected households from unemployment and falling incomes. But that has not stopped unemployment from soaring in some countries. In addition, consumers are expected to remain cautious in the current highly uncertain environment as the consequences of the pandemic are threatening people’s employment and income prospects.”
Despite the uncertain outlook, the recent trend in gold is clear. Since Pfizer and BioNtech’s vaccine announcements, gold has been under constant pressure. Gold futures had their biggest one-day fall in seven years. This week, Moderna’s vaccine news sent a clearer signal that the virus will most likely be brought under control next year.
In a recent Forexlive post on the future of gold, here are a few factors to consider:
Consumer demand may pick up. China is the biggest buyer of gold. These purchases are usually made during the Lunar New Year period, so gold prices could recover from the end of December to January.
- Global risks remain — Brexit, the IMPASSE in the US government, and the broader economic impact of COVID-19 cannot be ignored.
- Easy monetary policy will continue. The Fed is expected to keep interest rates at their current ultra-low levels until 2023.
- Some ETF buyers have abandoned gold. The largest ETF, SPDR Gold, lost 26 tonnes last week. That was the biggest outflow since 2016.
The 10-year Treasury note is rising, making gold less attractive.
As for intraday gold moves, MarketPulse wrote that one unexpected effect of the narrow gold range of the past week has been that long-term trendline support has moved closer to the market. The intraday trend line is at $1870.50. As momentum stalls, the risk of another fall increases, especially if gold closes below $1,870.50 today. This would lead to a further decline to $1850.00 and a possible extension to the 200-day moving average of $1792.00. On the upside, gold still faces strong resistance of $1,900.00, with the 50 and 100 moving averages closing at $1,901.50 and $1,908.90 respectively.
Credit Suisse said it was bearish below 1887.00, with the target looking at 1864.00 and 1855.00 in turn. Alternatively, be bullish above 1887.00 and target 1885.00 and 1892.00 respectively.