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Post-US elections certainty and vaccine optimism drag gold lower

A weekly market summary for gold, Nov 23-27

THE gold market opened the week on a muted note, although the US Treasury secretary on Friday reassured markets that despite his requesting a return of emergency funds, the Treasury and the Federal Reserve have enough firepower to support the US economy.

President-elect Joe Biden announced the beginning of a formal transition of power, as well as nominations for top positions, which served to reduce the risk connected with a contested election. Former Fed chief Janet Yellen is expected to become the next Treasury secretary. This step was considered by the gold market as dovish, as Ms Yellen had in the past been supportive of bigger government economic aid to stimulate the economy and recover quickly from the pandemic.

Gold prices came under pressure through the early part of the week, dropping through support of US$1,850 as investors turned to riskier assets. There was an increase in optimism that economic activity would improve after AstraZeneca's vaccine results brought more promising news.

Gold prices found support at US$1,800 an ounce as disappointing US economic data brought the present reality of the rampant spread of the novel coronavirus in Europe and the US into the limelight. The surprise rise in jobless claims while Covid-19 infections surged dampened sentiment which had been leaning towards riskier assets and turned investor interest back to safe havens.

The number of Covid-19 cases continued to rise in the US given the additional travelling during Thanksgiving. Red flags have also been raised on the progress of vaccine efficacies. The British government said on Friday that has formally asked the country's medicines regulator to assess whether a coronavirus vaccine developed by AstraZeneca and Oxford University should be authorised for use.

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Trading however, had been subdued towards the end of the week due to the Thanksgiving holiday in the US.

What should investors look out for in the longer term?

The recent drop in gold prices does not imply a significant change in the fundamentals of gold. Vaccines developed by the pharma firms have not yet been rolled out to the mass market, efficacies have also not been proven beyond doubt. An effective vaccine is still not yet being authorised for mass distribution and although pharma firms are redoubling efforts to get the vaccines available for distribution, experts have warned that it would be early next year before one can be distributed.

Technical analysis for Comex December Gold Futures (GCZ20)

Trading for the week had been bearish for gold, as the precious metal drifted down past the US$1,850 support to test the next immediate one at US$1,800. The US$1,800 is expected to hold as gold markets recover from vaccine "news" events week. Short-term technical indicators on the daily charts for gold which had been painting a bearish and deteriorating technical picture are oversold.

Next major support for the GC December contract lies at US$1,700. Resistance is at US$1,850 followed by the US$1,900.

  • The writer is senior manager, commodities, Phillip Futures

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