Gold rises as softer dollar, stimulus hopes outweigh vaccine optimism
· Gold climbed higher on Monday, as a softer dollar and hopes of further U.S. monetary stimulus to cushion the pandemic-hit economy offset optimism over the possibility of a Covid-19 vaccine rollout next month.
· Spot gold rose 0.2% to $1,873.51 per ounce by 0510 GMT and U.S. gold futures were little changed at $1,871.70.
· U.S. Treasury Secretary Steven Mnuchin on Friday reassured markets that the Fed and Treasury had many tools left to support the economy, after deciding to de-fund several Federal Reserve lending programs by the end of the year.
· “Ironically, the failure to deliver a fiscal package is supportive for gold,” said Michael McCarthy, chief strategist at CMC Markets, noting there might be more reliance on Fed support likely in the form of liquidity and lower interest rates as a result.
· Non-yielding gold is often seen as a hedge against inflation that is likely to result from stimulus measures.
· Also lending support to bullion was a softer U.S. dollar that reduced the cost of purchasing it to other currency holders.
· News that U.S. healthcare workers could start getting Covid-19 inoculation shots within a day or two of regulatory consent next month helped push broad index of Asian equities to record highs.
· Investors may be less inclined to chase prices higher and patiently wait for dips opportunities as interest rates will likely remain low and the dollar weaker next year, said Avtar Sandu, senior commodities manager at Phillip Futures.
· On the technical front, gold may retest support at $1,855 per ounce, a break below which could cause a fall to $1,841, according to Reuters technical analyst Wang Tao.
· Gold bulls and bears fighting for gold's next $50 move
There is no clear short-term advantage in the gold market as bullish and bearish investors fight for the next $50 move, according to the latest results of the Kitco News Weekly Gold Survey.
Although there is no majority among Wall Street analysts and retail investors, the bullish investors have a slight advantage when it comes to sentiment next week. However, the battle in gold is being fought over resistance at $1,900 an ounce and support at $1,850 an ounce.
Gold’s sideways trading appears to be weighing on retail investors the most; bullish sentiment is at its lowest level since May 2019. Although analysts are looking for a breakout, some don’t expect it will happen anytime soon.
“I think gold is stuck in this range, and we will remain here until we get some new information,” said Kevin Grady, president of Phoenix Futures and Options. “For gold to break above $1,900, we need to see some news on new stimulus measures, but that doesn’t seem like a priority right now.”
“If key chart support at $1,848.00 in December futures breached, bears would gain power to suggest a fresh leg down in prices in the near term,” said Jim Wyckoff, senior technical analyst at Kitco.com.
Although gold is ending the week in negative territory, some analysts note that the market is showing some resilient strength given the ongoing vaccine news that has dominated investor sentiment.
“The gold story hasn’t gone away; it has just been put on pause as investors and markets search for some normalcy in the economy,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Hansen said that there is a risk that gold prices could continue to push lower as more vaccine news boost investor optimism; however, he added that there is still too much uncertainty and stimulus in the marketplace for gold prices to go significantly lower.
“I’m bullish on gold, but I’m not in a hurry to buy,” he said. “I would see a drop below $1,850 and a test of the 200-day moving average as a buying opportunity.”
Marc Chandler, chief market strategist at Bannockburn Global Forex, said that he is also watching support around $1,850.
“I worry that the support in the 1848-1850 area has to be retested and possibly violated before a solid base can be made,” he said.
Grady said that although he is neutral on gold in the near-term, he does continue to see potential for higher prices in the long-term.
“Gold did not get to these levels because of the pandemic,” he said. “Gold got to these levels because currencies have been devalued and they will continue to be devalued after we have dealt with the pandemic.”
Darin Newsom, president of Darin Newsom Analysis, said that although gold is stuck in a range, the market appears to be creating some upside momentum to retest resistance at $1,900.
Longer-term, he said that he would expect gold prices to retest the August highs before the end of the year and see more significant selling pressure.
“Gold has room to move higher, but volatility is coming down and a huge amount of chaos will be leaving the market and we could see some selling after Jan. 20,” he said. “If you look at copper. We have seen a big move in copper because the market is feeling good about the global economy and that won’t be good for gold.”
· Is $40 silver price possible in 2021? Peter Hug answers
Once industrial demand picks up, more tailwinds for silver will push the metal closer to the $35 to $40 an ounce range next year, said Peter Hug, global trading director of Kitco Metals.
“There’s two elements. One, if we got the inflation scenario and gold took off, silver being an industrial metal, with the economies rebuilding and regenerating, we’ll get an industrial component of demand coming into the silver market and push silver from a ratio perspective higher than gold where the ratio is currently,” Hug said.
· Silver firmed 0.5% to $24.25 an ounce. Platinum rose 0.1% to $946.43, while palladium gained 0.6% to $2,339.56.
Reference: CNBC, Kitco
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