SMM: after the euphoria brought by the good news of the vaccine, risk aversion in the market soon returned, as investors are facing the harsh reality of novel coronavirus's record confirmed cases, more restrictions and the absence of new stimulus measures.
Gold has rebounded after falling $100 at the start of the week, which will continue into next week, analysts said on Friday.
Peter Hug, global head of trading at Kitco Metals, said: "even after the decline, we still have a positive attitude towards gold and silver. I think the price of gold will stay above $1850, and it is true. This is the market you want to buy. I don't think anything has changed. "
Gold accelerated its rally on Friday as the dollar weakened as 10-year Treasury yields reversed. In late afternoon trading, COMEX December gold futures closed up $12.90 at $1886.20 an ounce, but were down more than 3 per cent this week.
We have seen the recent surge in 10-year Treasury yields have fallen. In this case, gold has performed well, volatility has fallen, and the market is realising that things will be more or less the same as in the past. We will have to take on huge debts and extremely low interest rates. We will continue to worry about currency devaluation, "Bart Melek, head of global strategy at TD Securities, told Kitco News on Friday.
Melek added that the news of the Pfizer vaccine did not change the trend of gold.
"We will still have a slow-growing economy, it will take a long time to deploy vaccines for everyone, and they will need strong government action, which will need to be funded by printing money for many years to come. This means a good environment for gold. So we stick to our view that the price of gold will rise to $2500 by the end of 2021. "
Pfizer's vaccine is unlikely to be approved by the Food and Drug Administration ((FDA)) before the end of December, nor is it likely to be put into large-scale use before the summer, he said. "delivering the vaccine to the public requires logistical support because it requires two doses of vaccine and needs to be preserved at a certain temperature."
For the vaccine to have an impact on the economy, people need to start getting vaccinated and go back to work. "this process will become a reality by mid-2021. When we enter this stage, it will have a positive impact on the economy. "
Most importantly, however, central banks around the world will maintain a very loose monetary policy in the meantime, which is good for gold. "the central bank will not put the brakes on the stimulus and inflation will rise. It's good for metals, "Hug said.
Melek expects the situation to be good for gold next week, pointing out that selling usually comes faster and stronger than a longer-term rebound.
The vaccine news from Pfizer led to a sell-off in gold. Now, we have a bit of a reversal in the second wave. We are not sure about the outlook for fiscal expenditure. Us President Donald Trump does not seem to give in soon. All this means that the outlook is at risk, "he said.
Hug recommends buying gold on bargains in the future, as the macro environment is still extremely favourable for the precious metal.
"if it falls below $1850, the next level will be $1825. We may need to be patient, but sometime next quarter, gold will break through $2000 and start to move higher, "he said."
As the number of novel coronavirus cases in the United States continues to rise at a record rate, with more than 120000 cases reported every day this week, the market wants to see the government take action and reassure people. Next week, all eyes will be on the US election and the headlines about economic stimulus.
"the biggest risk to gold next week is government inaction. Either because US President Trump refuses to take any action before acknowledging the election results, or because Biden is the president-elect rather than the incumbent president, no action can be taken. "
Economists at ING say the market does not rule out the possibility of more restrictions on public and corporate activities in the United States.
"with the surge in COVID-19 cases in the United States, we have a feeling that stricter containment measures will be reintroduced in the near future-most likely shortly after Thanksgiving," they said. "
Mr Hug added that the stimulus talks appeared to be back at the table, but that progress still seemed unlikely.
It seems that Republicans and Democrats do not intend to work together on an economic stimulus package before the new president is sworn in. This is a huge risk for the stock market, especially if some states go into blockade mode, "he said." "it may also have a negative impact on metals in the short term. With the stimulus, however, the macro outlook for metals looks good. In the medium term, I am polymetallic and bearish on the dollar. "
Melek pointed out that if the government does not introduce new stimulus measures in time, the Fed will face more pressure to do more.
"Let's not forget that there is a second wave of COVID-19 epidemic. We are not sure when we will get new stimulation. The conclusion now is that the Fed may have to do more, "he said."
Next week we will also see Democratic presidential candidate Joe Biden push forward the transition plan. Meanwhile, US President Donald Trump continues to question the election results.
"recounting votes, legal cases, and behind-the-scenes fraud allegations, all of which are still sources of uncertainty. This is exacerbating political hostility and we fear that any financial support that helps to mitigate some of the damage to the economy caused by restrictions could be introduced slowly as a result, "said economists at ING.
However, Charlie Nedoss, senior market strategist at LaSalle Futures Group, said the rise in novel coronavirus cases and the dire situation in which millions of people are still unemployed could prompt the US government to finally reach some kind of agreement.
"the last stimulus worked. But we have seen that as many people lose their jobs and the epidemic becomes more and more serious, we may see more blockades. There is more incentive to introduce some stimulus measures, "Nedoss said."
Key levels to focus on next week
Melek thinks the lower limit of gold price next week is $1850 and the upper limit is $1930.
Nedoss expects gold prices to challenge the 20-day moving average of $1898 next week, which is close to the psychologically important $1900 level.
Economic data to pay attention to next week
A series of important macroeconomic data will be released next week, including US retail sales next Tuesday.
The US will release the New York Fed manufacturing index next Monday, US industrial production data next Tuesday, construction permits and housing starts data next Wednesday, and initial jobless claims, Philadelphia Fed manufacturing index and existing home sales data next Thursday.
"any decent data is good for gold, mainly because inflation expectations should get some boost," Melek said.
