Will gold, like a phoenix, rise from the ashes of below mid-$1800 pricing, to reclaim its berth in $1,900 territory this week?
Despite a Federal Reserve meeting on Wednesday that could spell out more asset purchases that would technically fuel inflation and be friendly to gold, buyer beware seems to be the guidance for the shiny metal’s most ardent investors this week. So, the short answer appears to be: No.
Gold chartist Dhwani Mehta said in a blog posted on FXStreet that the outlook remains downbeat in the coming sessions. She adds:
“Immediate support awaits at the horizontal 100-Simple Moving Average at $1830, below which the triangle support at $1,823.50 could be tested.”
“Alternatively, a sustained break above the aforesaid critical resistance could confirm the descending triangle breakout and negate the recent downside bias. The bulls could then challenge the 200-day Simple Moving Average at $1,861.”
In Monday’s Asian trading, gold for February delivery was down $6.75, or 0.4%, at $1,836.85 an ounce in Singapore by 3:07 PM ET (0707 GMT) before its open on New York’s Comex.
The spot price of gold, which reflects real-time trades in bullion and which algorithms and hedge funds use to decide on immediate direction in futures, was down $6.34, or 0.3%, at $1,833.26.
Vaccine Rollout, Stimulus Difficulty Hurt Gold
The rollout of COVID-19 vaccines that theoretically aid a return to normal life is one of the main antidotes against investing in so-called safe havens like gold.
The other is the continued difficulty of reaching any agreement in Congress for a pandemic relief that would ideally satisfy both Republicans in the Senate and Democrats in the House of Speaker of Representatives. Another week could be plundered by Senate Majority Leader Mitch McConnell in stringing Democrat rivals along in talks that appear to start meaningfully, then go nowhere. The haven crowd, awaiting such stimulus to boost inflation-sensitive gold, could again be set up for disappointment that is.
Yet, there could be some wind behind gold’s wings as the picture isn’t entirely rosy on the risk front either.
Some Reprieve Above $1,860 Likely For Gold With Fed
While $1,900 gold may not be within immediate reach, a modest target above $1,860 is still likely by Wednesday, if optimism for Fed action grows and economic worries mount, putting pressure on lawmakers in Congress to whittle down their differences and get a stimulus deal done.
Giles Coghlan, gold analyst at FX Live said:
“Yes, we have a vaccine coming. Yes, we have a stimulus bill expected. However, the Fed is still likely to need to do another round of easing. That could be the catalyst gold needs to launch higher onto Q1 2021. Don't forget seasonal demand picks up around now for gold.”
Oil Charges On, Ignoring Vaccine Risks, Supply Builds
While gold continued to trade along the lines of caution, oil continued its runaway charge higher.
New York-traded West Texas Intermediate, the leading indicator for U.S. crude, was up 60 cents, or 1.3%, at $47.17 a barrel.
London-traded Brent, the global benchmark for crude, rose 63 cents, or 1.3%, to $50.60.
Oil prices have been on a tear over the past six weeks, with the U.S. crude benchmark gaining almost $11 or 31% in that span, while its U.K. peer rose nearly $13 or 35%. The rally is underpinned by the belief that people everywhere will soon be able to jump on a plane or any form of mass transit to go anywhere, anytime, as millions of doses of coronavirus vaccines are rolled out.
The reality, of course, is more complicated than that.
While vaccines are slated to arrive in all 50 U.S. states Monday, and top health officials are hopeful that medical staff can begin administering doses immediately, they also warn that it's likely the United States won't see any widespread impact from immunization until well into 2021. In a surprising about-turn, President Donald Trump reversed the vaccination schedule for senior White House staffers, tweeting Sunday evening that they should get their shots "somewhat later in the program, unless specifically necessary."
COVID-19 statistics, meanwhile, are continuing to go through the roof. After the just-ended worst week for new infections and hospitalizations from the virus, U.S. deaths rose by 1,391 on Sunday to 299,489.
In Europe, the pandemic is worsening too. Italy overtook the U.K. for highest coronavirus death toll in Europe, threatening once again the horrifying specter seen earlier in the year.
In Germany, the virus was getting “out of control,” Economic Minister Peter Altmaier said. He warned that the 2021 economic situation was likely to be volatile, although a recession like in spring 2020 might not be likely. He added:
“If we act wisely, we can prevent another recession.”
Crude prices are also rallying despite huge U.S. inventories reported for the week ended Dec. 4.
Domestic crude stockpiles rose by 15.2 million barrels for that week, the Energy Information Administration said, versus analysts' expectations for a 1.42 million-barrel drawdown instead.
Distillate stockpiles, which include diesel and heating oil, rose by 5.2 million barrels during the week ended Dec. 4, against expectations for a 1.41 million barrel increase, the agency’s data showed.
U.S. gasoline inventories rose by 4.22 million barrels last week the EIA said, compared with expectations for a 2.27 million-barrel build.
Crude chartist Daniel Dubrovsky posted in a blog on Daily FX about the perils of WTI:
“Traders ought to take recent price action in crude oil prices with a grain of salt.”
“In the event of a deeper pullback in energy prices, keep a close eye on the 33.66 – 36.15 support zone.”