International spot gold Wednesday (January 6) under pressure, the highest hit $1959.24 / ounce suddenly turned sharply, fell more than $50, began to test the support effect of $1900, once again showing the “buy rumors, sell the facts” situation. At the same time, the pause in the decline of the dollar has also limited gold’s further upside to some extent, and the short-term top may be formed to allow investors to lock in profits at high levels.
In addition to the dollar, higher U.S. Treasury yields have also pushed back gold bulls, as they increase the opportunity cost of holding non-interest-bearing gold assets. However, gold is still seen as an important hedge against inflation, and with Democrats dominating the runoff vote for control of the US Senate, investors expect further fiscal stimulus from Congress in the future. That raises the risk of a rise in Treasury yields, but it also raises the risk of inflation, providing solid support for gold.
As a result, investors also appear reluctant to place big bets ahead of Wednesday’s Federal Open Market Committee minutes.
“If the Democrats take control of the Senate in both run-off races in Georgia, the precious metal could get further support,” said James Hiddler, chief precious metals analyst at HSBC. That would result in a unified government that would clear the way for Mr. Biden to implement his agenda of recovering the world’s largest economy from the ravage of the epidemic. But a Republican win could be less gold-friendly.”
Bitcoin, meanwhile, resumed its rally after a sharp pullback earlier this week, hitting new all-time highs, at one point breaking above $35,000 and very close to $36,000, sending money pouring into the cryptocurrency market. Whether bitcoin will threaten gold’s safe-haven status will continue to be debated for a long time. However, it has been shown that the flow of money will more or less affect the safe haven of gold, which is likely to continue to face a rally and retreat situation.
On the data front, the day released the US “small non-farm” ADP employment data did not perform well. U.S. ADP payrolls came in at -123,000 in December, the first negative reading since April 2020. Expectations are for an increase of 50,000.
ADP Employment Report: The December ADP report showed that both large and small businesses lost jobs, while midsize firms posted gains. Employment in the service sector fell the most. The market is expected to revise down the December non-farm payrolls estimate after the ADP release.
Technically, gold is aiming to test resistance range 1959-1973 after confirming a break from the downtrend line seen since August. Recently, a “gold fork” has emerged, indicating further upside potential. However, if gold turns lower, watch for support on the upside since late November. Gold is now back on track in the downward channel it has been in since early August, and if it stabilizes, it could bring back more bargain-hunting and build momentum for a bigger rally. Otherwise, there is a risk of returning to the downtrend.
Analyst Peter Krauth says gold prices are still low. Massive global easing, continued geopolitical risk and high global debt all mean gold will find support. “In this scenario, gold at $1,940 an ounce will look extremely cheap in retrospect at the end of the year.”
Stephen Innes, chief global market strategist at AXI, said: “The market reaction to the election was overwhelming and liquidity was quite thin. [But] whoever wins, the market will pick up gold on dips because the reflation trade is the prevailing view right now.”