Gold price down $100 on vaccine news, but analysts don't see change in inflation, uncertainty narrative
(Kitco News) - In what has been a wild morning, gold prices are down nearly $100 Monday but so far, holding critical support levels after Pfizer and BioNTech announced a potential vaccine for the COVID-19 virus.
However, some analysts are warning that the selling pressure appears to be overdone as there is plenty of uncertainty and liquidity in the marketplace to support the precious metal. December gold futures last traded at $1,855.60 an ounce, down 5% on the day.
Robin Bhar, an independent commodity analyst, said that while the latest headlines are negative for gold, there is still a lot of investors who don ’t know about the potential vaccine. He added that investors should wait for the dust to settle before making any major changes in their gold investment.
“When the dust settles, I think I still want to buy gold on the dips,” he said. “There is still a long way to go before a vaccine will be accessible to everyone. When everyone can get a vaccine that is maybe when you want to sell gold.”
Bhar added that the next 24 hours would be crucial for the gold market to see if prices can hold critical support levels. So far, gold has managed to hold support at September ’s low above $1,850. Bhar added that the next major support area he is watching is around the 200-day moving average at $1,794 an ounce.
Ole Hansen, head of commodity strategy at Saxo Bank, said that he also remains bullish on gold in the near-term as he expects it will take a while before the vaccine is available to the public.
“The virus could go away, but that doesn ’t mean economic growth will turn around on a dime,” he said. “A lot of damage has been done that can ’t easily be fixed or that will take a lot of time."
Hansen added that he is not surprised gold is seeing significant selling pressure on the vaccine announcement. He added that the news reduced the chances governments will inject more stimulus into financial markets.
“Basically, we are seeing an unwind of the trade we have been building up for the last six months,” he said. “But there is still plenty of uncertainty to support gold ’s new regime. A vaccine is positive news, but it doesn ’t change the narrative.”
Although there are shifting expectations of new stimulus measures, Hansen said that the global economy still has to deal with the trillions of dollars that were pumped into financial markets in the Spring.
Analysts and economists noted that it took the Federal Reserve nearly a decade to unwind, with limited success, stimulus measures introduced during the 2008 Financial Crisis.
“The reality is that interest rates won ’t be hiked anytime soon, and that will continue to be good for gold,” said Hansen. “If we do see the global economy bounce back quickly, then there is a chance that inflation is turbocharged and could lead to significantly negative real interest rates.”
Looking at gold ’s technical picture, while the precious metal has seen significant selling pressure, it has not damaged gold ’s long-term outlook, said Jim Wyckoff, senior technical analyst at Kitco.com.“Bulls need to defend strong technical support at the September low of $1,851.00. A drop below that price level would inflict serious near-term chart damage to suggest a new leg down in prices,” he said in a report published Monday.