Spot gold on Thursday (December 10) traded in a tight range, peaking at $1,849.96 an ounce and hovering between $1,840 and $1,850 for the time being as positive news on vaccines gradually cooled market fears about the outbreak. There has been a tug of war between vaccines and the epidemic. Given that the good news about future vaccines is expected to continue to grow, countries will continue to vaccinate, and there is a trade-off between risk aversion and inflation within the fiscal stimulus, gold’s upward path will still face significant headwinds.
In brexit, the two sides decided to postpone the final deadline for negotiations until Sunday after British Prime Minister Boris Johnson’s visit to Brussels yesterday to meet European Commission President Jeroen van der Leyen failed to produce results. With British Foreign Secretary William Raab saying it was “unlikely” the talks would be extended until Sunday, there was “still a significant gap” in the talks. That has given a bit of a boost to safe-haven demand as investors worry that the risk of a no-deal Brexit is rising.
In terms of vaccines, Pfizer’s vaccine is expected to receive urgent FDA approval soon. In the United States, however, vaccination may not begin until four days after the vaccine is approved, rather than one or two days as previously expected. If the Vaccines and Related Biological Products Advisory Committee (VRBPAC) convened by the FDA rejected Pfizer’s vaccine after approval in the United Kingdom, it would be highly controversial — for better or worse. If that happens, it would be a big blow to risk sentiment. And given that the market has largely priced in the benefit of a vaccine approval, the boost to risky assets is likely to be limited even if it is officially approved, but gold could benefit from a surprise that could pose a greater downside risk.
On the economic front, initial jobless claims have taken a sudden turn for the worse. Initial claims for state unemployment benefits rose to 853,000 in the week to December 5, the highest level since the week of September 19. In further evidence that the epidemic and lack of additional fiscal stimulus are hurting the U.S. economy, new jobless claims rose more than expected last week as more companies were constrained by a rise in novel Coronavirus infections, the agency said in a commentary.
On fiscal stimulus, republicans and Democrats are still negotiating on a fiscal stimulus package, but Senate Leader Mitch McConnell criticized Democrats for refusing to cooperate, saying help will not be forthcoming. That makes fiscal stimulus less likely again before the end of the year.
From a technical point of view, with the previous long and short turning point 1850 again lost, the gold market center of gravity will be back to the downward trend. A breakthrough in the 1821 low within the week is expected to lead to further tests of the 1800 level. Only a close above 1850 this week would indicate more volatility and rallies ahead.
Separately, data released on Wednesday by the World Gold Council showed positions in global gold exchange-traded funds (ETFS) fell in November for the first time in a year and the second highest monthly net outflow on record.
Jeffrey Sica, founder of Circle Alternative Investments, said: “People expect that some of the confusion caused by the outbreak will subside as some parts of the world start to get vaccinated.” Canada approved Pfizer and BioNTech’s COVID-19 vaccine on Wednesday, a day after the UK became the first Western country to begin mass vaccinations.
HSBC analyst James Steel said in a note that clearing of gold ETFs poses a threat to gold prices, central bank demand is waning and HSBC has cut its gold price forecast for 2021 by 3% to $1,907. He added that while gold’s rally was held back by the COVID-19 news, gold and silver remained supported by loose monetary and fiscal policies, as well as geopolitical risks, with investors now waiting for a policy cue from the Federal Reserve at its two-day meeting next week.