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'It's too early to dismiss coronavirus': Gold price setback is temporary - Commerzbank

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(Kitco News) After shedding $100 within hours, the gold price is back in recovery mode Tuesday, and that is to be expected, according to Commerzbank, which says it's too early to rule out coronavirus from the equation.

"It is still too early to dismiss the threat posed by corona," said Commerzbank analyst Carsten Fritsch. "It will take some time yet for sufficient quantities of any vaccine to be made available and for widespread immunization to be achieved."

Monday's news of progress in the development of a COVID-19 vaccine has sent precious metals lower and stocks higher as investors began to price in less stimulus in the future.

"In a matter of hours, the price plunged to $1,850 per troy ounce. For a time, it was down by around $100, i.e. 5%, which constitutes its biggest daily loss in three months. This also saw gold shed all of the gains it had made since the end of October in one fell swoop, whereas stocks rose sharply on the back of growing risk appetite," explained Fritsch. "The main explanation for this is that further stimulus measures will be less necessary if an effective vaccine becomes available."

This development has taken out an important driver that was pushing gold prices higher – the inevitability of more stimulus.

"The rise in risk appetite triggered a surge in bond yields. Yields on ten-year US Treasuries soared by 15 basis points to 0.97% yesterday, putting them at their highest level since March; due to the increasing opportunity costs, this likewise weighed on gold. As a result, there was less demand for gold as a non-interest-bearing investment," said Fritsch.

Looking at gold-backed exchange-traded funds (ETFs), the sector also saw significant outflows as the world's largest gold ETF, the SPDR Gold Trust, reported an outflow of 10.5 tons on Monday, marking the most significant loss in six weeks.

However, Commerzbank views this selloff as a brief setback, pointing to loose monetary policies for years to come.

"It is unlikely that central banks will now return to rather normal monetary policy. If anything, it looks as if further easing is on the cards. We, therefore, regard yesterday's gold price slide more as a brief setback rather than the start of a prolonged phase of weakness," said Fritsch. "This is also suggested by today's price performance: the gold price is now back at $1,890. And yesterday's euphoria on the stock markets has also largely evaporated again."

At the time of writing, December Comex gold futures were trading at $1,881.10, up 1.44% on the day.

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