Gold dips as Treasury Secretary Mnuchin recalls pandemic-related funds
· Gold prices fell on Friday after U.S. Treasury Secretary Steven Mnuchin called for an end to some of the Federal Reserve’s pandemic lending, sparking uncertainty about stimulus programs that have played a key role in reassuring financial markets.
· Spot gold slipped 0.2% to $1,864.54 per ounce by 0359 GMT and was headed for a second week of decline. U.S. gold futures were up 0.1% at $1,863.80.
· “If the Fed does start shrinking its assistance program that could be a bit of headwind for gold again ... The monetary debasement argument that has supported gold could weaken,” said Lachlan Shaw, National Australia Bank’s head of commodity research.
· In a letter, Munchin told Fed Chairman Jerome Powell that $455 billion allocated to Treasury under the CARES Act should be instead available for Congress to reallocate.
· His comments weighed on equities while helping the dollar halt its week-long slide.
· Gold, considered a hedge against inflation and currency debasement, has gained 23% this year, benefiting mainly from unprecedented stimulus measures unveiled to cushion the pandemic impact.
· “It’s going to be a huge bumpy ride (for gold) waiting for stimulus to come in,” said Stephen Innes, chief global market strategist at financial services firm Axi. “It is now looking at $1,900 into year-end.”
· Bullion was down 1.3% for the week as promising Covid-19 vaccine trials dimmed the metal’s appeal.
· Gold's path to $2,300: Renewed investment flows from lower stocks, 'bitcoin's demise'
Gold's path to new record highs is still intact despite November's disappointing price action, said OANDA senior market analyst Edward Moya, who is looking towards the $2,300 an ounce price target during the first half of 2021.
Positive vaccine news triggered a selloff in the precious metals space as investors start to price in a stronger economic recovery, Moya told Kitco News on Wednesday.
Gold's price trajectory will not disappoint investors into the year-end, and during the first half of next year, the market analyst added.
"I would be surprised if we didn't start to see gold trade between that $1,950 and $2,000 range," Moya said.
The end of 2020 is likely to witness Congress resuming talks and the Fed signaling more action at its December 16th meeting. "That's when the Fed is likely to signal a boost to its monthly Treasury purchases. Also, if the Fed doesn't adopt the yield curve control, it's going to signal that it is getting much closer."
Moya did warn that the price action might be very messy. "We still need to see Congress deliver, and sadly, all these regional shutdowns, lockdowns, and school closures are just going to raise pressure for more stimulus to happen."
When it comes to next year, the first half of the year is looking like the one with the most gains for gold.
"I would expect gold to make a fresh record high at some point in the first half of next year. As far as how prices finish out the year, it's going to be extremely volatile. A lot of that is dependent upon how the virus spreads and how effective the vaccines are," Moya said. "I'm still fairly bullish on gold, and I think $2,300 is possible as a level."
Important to keep in mind that once the markets exit the pandemic trading, inflation concerns will come back, which is good for gold, Moya added.
· Gold takes a knock amid exodus from ETFs, progress on Covid vaccines
Gold dropped for a fourth day as investors weighed positive vaccine developments and a steady drawdown in bullion-backed exchange-traded funds against mounting restrictions to curb a jump in coronavirus cases.
Since hitting a record in August, bullion’s rally has stalled amid uncertainty over further stimulus measures and optimism over an effective vaccine, even as the virus continues to spread. In particular, worldwide holdings in gold-backed ETFs are starting to ebb, putting them on course for the first monthly contraction this year, according to initial data compiled by Bloomberg.
“Gold prices can be seen stuck in consolidation of late, balanced between the rising Covid-19 cases and the recent vaccine optimism,” said Jingyi Pan, market strategist at IG Asia. “Evidently the trajectory expected with the vaccine is a positive one, despite the lengthy process anticipated for mass vaccination. This had played to a decline in safe-haven demand for the forward-looking market, including in gold ETFs.”
· Why gold will benefit from bitcoin's volatility
Another very interesting development in the markets has been bitcoin's breach of $18,000 this week.
"Bitcoin has really benefited from a big breakthrough in mainstream acceptance. We had the PayPal announcement, that was pretty big. We had the Biden administration tap Gary Gensler to run the financial authority there and Gensler was kind of viewed as crypto-friendly," Moya said.
And while many traders see the cryptocurrency taking investment flows away from gold, Moya noted that eventually, bitcoin's wild swing up would be reversed, and that will benefit gold. "Ultimately, you're going see cryptos have that violent behavior, and you're going to see investors preferring to trade gold's fluctuations instead."
And once bitcoin begins to decline, gold will be well-positioned to benefit "from the demise of bitcoin," he added. "Whenever we see these exponential moves higher, that's going to be another nice catalyst here for gold as well."
· Degussa sees gold price rising to $2,500 by mid-2021 as central banks continue to print money
The gold market continues to hold on to critical support above $1,850 an ounce, but shifting investor sentiment following positive vaccine news in the last two weeks created significant pressure for the precious metal.
However, one European precious metals firm does not expect a vaccine for the COVID-19 virus to significantly change the course of the global economy.
"No doubt, there is a great deal of uncertainty about the future course of the world's economic and financial developments. However, it appears that the savvy investor has quite some reason to expect that interest rates will remain very low in the foreseeable future, simply because overall indebtedness has become too high. Central banks are unlikely to withdraw their support for the economies and financial markets in particular," said analysts at Degussa in a report published Thursday.
Degussa remains cautiously optimistic on gold's long-term potential, even as the precious metal currently struggles to attract new investors. In the report, the precious metals firm said it sees gold prices rising to $2,500 an ounce by mid-2021. The analysts said that they see a top-end range around $2,780, with a low end of the range coming in at $2,310.
"At current prices, our estimate implies an upward potential of around 30%," the analysts said.
· Silver was flat at $24.09 per ounce. Platinum fell 0.2% to $949.78 per ounce, while palladium eased 0.2% to $2,321.05.
Reference: Reuters, Business Standard, Kitco
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