Gold rises on US fiscal stimulus bets, further appreciation would be gradual

GOLD prices were buoyant through the week despite the rollout of Covid-19 vaccines in more countries, curbing safe-haven demand of the precious metal.

The improvement in risk sentiment had been brushed aside even as the number of coronavirus cases grew rapidly in Europe and the United States, increasing fears of lockdowns. The US dollar remains weak, touching lows last seen more than two years ago, further limiting losses in precious metals from the euphoria of vaccine availability to the masses.

Throughout the week, gold prices were kept buoyant on expectations that the Federal Reserve, at its monthly policy meeting, would tinker with monetary policy with rising record numbers of Covid-19 cases in the US and the deadlock in the fiscal stimulus negotiations among members of the US Congress. The Fed's Federal Market Open Committee (FOMC), however kept rates unchanged at its last meeting of the year. The Fed did again renew its commitment to keep funnelling cash into financial markets further into the future, to fight the economic downturn.

Gold bulls brushed aside disappointment and focused on improving prospects of a fiscal stimulus bill being worked out before Congress breaks for its recess next week.

What should investors look out for in the longer term?

The fundamentals driving gold have not changed structurally, but the appreciation would be at a much more gradual pace with frequent pullbacks. For now, investors and traders would have to contend with the fact that although vaccines are here, they have not yet fully arrived and distribution would face logistical and distribution challenges. The number of coronavirus cases in the West may be expected to increase as winter sets in and Covid-19 spreads during the year-end festive season.

Technical analysis for Comex February gold futures (GCG21)

The week saw gold prices appreciating in a continued mini-rally with the contract touching a high of US$1,902 an ounce. Prices raced towards the psychologically significant US$1,900 round number. Although technical indicators on daily charts are yet reflecting overbought conditions, we may see a retracement. The recent rally took gold prices to the upper band of the 20-period Bollinger.

The US fiscal stimulus when passed would have been factored into the market, and there may be very little to drive gold ahead of the holidays except the weak US dollar and renewed lockdowns. The US$1,900 level previously offered gold prices considerable resistance, and we may see a slight pullback. The major trend of gold is still bullish and deep pullbacks may be considered as opportunities.

The major support for the GC February contract lies at US$1,820, US$1,767 and then US$1,700. Immediate resistance is at US$1,970, followed by US$2,000.