Hawaii Six O - Gary Wagner
Why is gold is falling along with the dollar?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
For the third consecutive day, gold futures have closed lower. Today gold opened at $1872.00, and as of 5:00 PM, EST is currently fixed at $1864.70 after factoring in today’s net decline of $9.20 (-0.49%).
Although the cumulative losses over the last three days equal only about $23.50, each day when compared to the prior day resulted in a lower high, and a lower low. Today’s low came in at approximately $1850 which closely matches the low achieved on Monday, November 9th, when market forces took the precious yellow metal roughly $100 lower.
Concurrently the U.S. dollar has declined in value for the last six consecutive days. It fell from 92.95 a week ago on Thursday, November 12, and is currently fixed at 92.225. Over the last five trading days, the dollar has lost almost .75%.
It is a well-established fact that dollar weakness provides a tailwind that will usually move gold pricing higher. However, in the case of last week, we have seen both gold and the U.S. dollar trade lower. Although the dollar’s decline over the last week provided upside support for gold it was not enough to result in gains for the metal.
While many analysts have attributed the recent price decline in gold to dollar strength this week, nothing could be further from the truth. Recent declines in gold prices can be partially attributed to gains in U.S. equities, considering that on Monday the Dow Jones industrial average closed at a record high.
So, the most important question we must answer is if gold’s decline this week was not a result of dollar strength with U.S. equities scoring gains on both Monday and Thursday what has been the driving force taking the precious yellow metal lower?
It seems that that is a combination of the results of two vaccines. The announcement by Pfizer pharmaceuticals and Moderna that they have both completed the third stage trials and the data collected indicates that both have an efficacy above 90%, providing a one-two punch for gold prices.
This cannot be understated, as the effectiveness of both of these vaccines has the potential to eradicate the virus much in the same way as polio and smallpox vaccines. An Inactivated poliovirus vaccine (IPV) has been the only polio vaccine given in the United States since 2000, and according to the CDC protects almost all children (99 out of 100). Simply put this marvel of science has for the most part eradicated polio.
Another example is the smallpox vaccine, which according to the CDC was made from a virus called vaccinia, a poxvirus similar to smallpox. This vaccine is responsible for the eradication of smallpox, and as such the virus no longer exists in nature.
The coronavirus vaccines have proven to be up to 95% effective which puts them in the efficacy category of polio and smallpox vaccines. This is truly a game-changer with the ability to eradicate the COVID-19 virus in the same way that the vaccines for smallpox and polio have done.
It truly signifies that there is a very bright light at the end of this dark tunnel. However, the timeline in which the general public is to get these vaccines will not come this year, and most likely not be available to the general public until April or May 2021.
The pandemic is currently reaching epidemic numbers. Yesterday it was reported that the United States experienced an additional 166,000 individuals becoming infected. This most certainly will lead to more tremendous expenditures, adding to the amount of economic fallout we will have to deal with once we reached the end of the tunnel.
It is for that reason while I am extremely optimistic that we could successfully eradicate the coronavirus, I fear that the timeline before that occurs will cause more financial hardship and therefore create the need for larger amounts of fiscal stimulus. It is the lack of fiscal stimulus that is also responsible for gold prices moving lower since hitting a new record high of $2088 on August 10.
Many analysts including myself believe that the next round of fiscal stimulus will be extremely bullish for gold, and I believe this will result in a new record high.
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Wishing you as always, good trading and good health,