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Vaccine news could weigh on gold prices amidst shifting interest rate expectations - ABN AMRO

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(Kitco News) - The gold market will remain sensitive to further vaccine news, but that doesn't mean the rally is over just yet, according to one Dutch bank.

In a report released Wednesday, Georgette Boele, currency and precious metals strategist at ABN AMRO, said that gold's direction could all depend on how expectations for a potential vaccine could impact economic growth going forward.

The comments come as gold prices continue to struggle below $1,900 an ounce. December gold futures last traded at $1,876.30 an ounce, down 0.47% on the day.

Boele noted that since 2019 gold has been an attractive safe-haven asset, protecting investors in case of a collapse of the financial system as well as a hedge against rising inflation; however, she added that low interest and weak currencies had been a significant driver of gold since the start of the COVID-19 pandemic.

She added that gold's safe-haven and hedging appeal have helped boost physical demand for the precious metal.

But she added, Many more investors bought gold because central banks eased monetary policy, real rates are negative in many countries and because there were few attractive currencies. Most currencies are unattractive because many countries are facing the disastrous consequences of the pandemic, and policy interest rates are close to zero or below zero. As a result, gold prices rose to new heights.”

The recent spate of vaccine news is now putting some pressure on that investment strategy, Boele said. Last week Pfizer and BioNTech surprised markets when they announced that they have a potential vaccine that is more than 90% effective.

Monday, Moderna said that a similar vaccine is it developing had a 95% effectiveness against COVID-19.

If there is a vaccine and it is rolled out, life can resume the way it was before the pandemic. Investors so far assume that the Fed will keep interest rates low for the next five to seven years,” she said. However, with a prolonged recovery of the US economy, this could be shorter, which could result lower gold prices.”

While there is a risk that shifting interest expectations could create some selling pressure in gold, Boele said that there is still strong support from investors who see gold as a safe-haven and an inflation hedge.

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