Spot gold resumed its rally on Monday, hitting as high as $1,863.74 an ounce before attempting to stabilise above the $1,860 mark. The focus of the Japanese market is back to the Brexit, with the risk of leaving the EU without a deal soaring, and the short-term demand for safe haven in the market rises sharply. The market is also watching this week’s us fiscal stimulus negotiations and approval of the COVID-19 vaccine. The outcome of the tussle between these three factors will determine the direction of gold prices this week.
British Prime Minister Boris Johnson will tell the European Union today that he will not change his position, vowing to fight France’s demand to leave the EU, the Sun reported. Mr Johnson is preparing to walk away from negotiations over the EU’s requirements within hours. Mr Johnson is likely to announce that Britain is pushing for a no-deal Brexit, which would mean a complete break with the EU.
A meeting of the European Council takes place on Thursday, so Wednesday is considered the deadline for the two sides to reach an agreement. But Eu chief negotiator Michel Barnier said key sticking points remained. The latest news is that British Prime Minister Boris Johnson and European Commission President Von der Leyen will hold a conference call this afternoon local time. In a closed-door meeting on Monday morning local time, Mr Barnier told EU officials that he could not guarantee a brexit deal with Britain. And British officials say the brexit talks could end today if there is no progress.
Meanwhile, a spokesman for the British prime minister said that in the absence of a free trade deal, “we will be guided by Australian terms, and the prime minister has made clear that we will also prosper under those terms.” He stressed that the UK would not extend the transition period to leave the EU and would not resume brexit trade talks with the EU next year, but that Prime Minister Boris Johnson still wanted a brexit trade deal.
On the other hand, the renewed focus on last week’s nearly trillion-dollar fiscal stimulus package, particularly the November nonfarm surprise, may have added some urgency to congress. But even if the stimulus is passed by the end of the year, some analysts say it may be small, but a stimulus bill is better than no stimulus at all.
It is important to note, however, whether the effect of fiscal stimulus on markets is more evident in boosting risk sentiment or in raising inflation risks, which will determine the actual effect on gold prices.
In addition, Britain will begin vaccinating against Pfizer on Tuesday. The FDA is expected to announce by the end of the week whether it will approve the emergency use of Pfizer’s vaccine, which, if approved, would boost risk sentiment and reduce some of the demand for safe haven.
Technically speaking, looking ahead to this week, the gains and losses of $1,850 could be the key to gold’s future. Given that even a 50% Fibonacci retracement around $1760 would take more time to establish a floor here, gold is likely to remain on the downside. Once gold is blocked by resistance in the upper $1870-1880 area, another pullback is expected to test support below $1800.
Daniel Pavilonis, senior commodity broker at RJO Futures in New York, said investors are not fully prepared to return to the bull market in gold and the sell-off need not end there. “The market is a bit tired and it would not be too surprising to see gold fall back this week.”
But Jeffrey Halley, analyst at MarketPulse, said gold is usually extremely sensitive to a rise in 10-year yields, and a rise in yields at the same time is a bullish signal. The dollar will suffer a prolonged period of depreciation. The Federal Reserve will almost certainly act to limit longer-term US Treasury yields and make a surprise purchase of a significant portion of the forthcoming US fiscal stimulus. Don’t call it simply monetization of debt. This should be a positive environment for gold prices.