Spot gold fell back again on Monday, hitting a low of $1,818.73 an ounce before losing ground, but was temporarily stuck below $1,830. The start of the week saw an improvement in risk sentiment, weighing on gold. On the one hand, the vaccine will be available in the United States within this week, which is expected to begin gradually to contain the worsening outbreak. On the other hand, the renewed extension of the Brexit negotiations suggests that the two sides may be on track to reach some sort of last-minute deal, adding to the positive mood in the markets. It is also uncertain whether a fiscal stimulus deal will provide a boost to gold, as either risk aversion or inflation risks are likely to be limited.
In Britain’s exit from the European Union, Britain and the European Union on Sunday again delayed the deadline for negotiations to leave the BLOC, but did not specify a date. British officials said the talks could continue until Christmas. While an expected trade deal has been delayed and both sides say they are far apart, investors are still inclined to believe an agreement can be reached. Paul Leech, co-head of global equities at Barclays, said: “The market is taking this as some meaningful good news that there will eventually be some form of agreement.”
The vaccine began to be distributed and administered in the United States this week, with much attention focused on whether the worsening situation can be positively controlled. Effective vaccines need to be given about twice a month apart, Forexlive noted. If the United States manages to do so, about a third of the U.S. population will be vaccinated by the spring of 2021. So, if the vaccination rate is the same, full recovery in the United States could be around the summer/fall of 2021. But once those most at risk are treated, the market will feel that the worst is over. Still, volatility is likely in the months ahead.
And sentiment towards fiscal stimulus is actually somewhat divided. A timely fiscal stimulus, coupled with the positive impact of the vaccine, would undoubtedly further boost risk sentiment in the market, damping safe-haven gold buying. But fiscal stimulus could also provide some support for gold by raising the risk of inflation. At the moment, the focus is on whether safe-haven demand or inflation risk is more pronounced, and if there is no significant difference, the effect of fiscal stimulus on gold may be limited. Ing noted that markets will be waiting for comments from U.S. Treasury Secretary Steven Mnuchin and House of Representatives Leader Nancy Pelosi today. Details of the $908 billion bipartisan proposal are expected to be released today, but congressional approval is likely to remain elusive.
Still, while gold’s upside momentum may be running a little short, the dollar’s continued weakness limits gold’s downside at least to some extent. Charlie Nedoss, senior market strategist at LaSalle Futures Group in New York, said he expects the dollar to weaken further this week, which should support gold prices. “This week, when the Electoral College votes, Joe Biden will officially become president-elect. I think that means we can expect to see stimulus next year, and that will put pressure on the dollar.”
On a technical daily chart, gold has once again dipped below its downtrend path since early August. A break below this target would see a lower target of $1807.00 / oz and a lower target of $1790.00 / oz. Only if the upper level stabilizes above $1850 can it maintain its short-term rebound trend and look further towards $1875.
Adrian Day, president and CHIEF executive of Adrian Day Asset Management, said he was neutral on gold prices in the near term, but remained bullish. “Gold is likely to trade within a tight range next week, but I expect an upside bias. It survived a major test below its 200-day moving average. I’m still bullish in the future; We’ve seen the bottom.”
Howie Lee, the economist at OCBC Bank, said: “The optimism surrounding the COVID-19 vaccine is likely to outweigh the impact of further fed easing and the near-term fiscal rescue program. But gold is likely to rebound in 2021 when optimism about vaccines fades and investors’ attention shifts back to expectations of higher inflation as the US economy still needs substantial monetary and fiscal stimulus.”