Gold bulls take a big hit on vaccine headlines – 2,000 USD off the table?
On one hand, we were initially right on our latest expectation for Gold. In our last technical piece for Gold last week, we wrote that the true winner of the US presidential election would be a member of neither the democratic or republican party, but the yellow metal: Gold. However, the tide turned dramatically on Monday after Pfizer/BioNTech announced that they are on their way to a Covid-19 vaccine that is said to be effective in preventing the virus in over 90% of cases.
As a result, US yields sharply rose with market participants seeing chances of a massive fiscal stimulus plan dropping. But we are not yet convinced that this news is a real game-changer.
In the Pfizer trial, there were 43,358 people involved, 50% of whom received the vaccine and 50% of whom received a placebo. Upon its first analysis of participants, of the 43,358 patients, 94 contracted Covid-19. Pfizer claims that the efficacy rate of the vaccine is above 90%.
While the first signs are definitely positive, we are still convinced that we are far from returning to "normal", especially from an economic perspective. As we already pointed out several times in the past (e.g. here), chances of a massive fiscal package to stabilize the US economy and an ultra-dovish approach from the US central bank FED to finance that fresh US debt is likely still on the table, which was underlined by FED chairman Powell last week on Wednesday saying that the FED hasn't considered slowing the $120 billion per-month pace of bond-buying.
That in mind, leaves us in a very difficult spot right now:
- The Gold daily chart, technically, looks ugly after the failed attempt to break above 1,975 USD
- Gold fell straight down to 1,850 USD in one daily candle, leaving an increased chance of a near-term test of 1,800 USD and drop even lower (target around 1,745/750 USD) on the table
- The next US government, (most likely democratic, but depending on the legal developments) has no other choice than to deliver a massive fiscal stimulus package, financed with freshly printed US-Dollar
However, a stimulus plan should create an overall favorable and bullish environment for the precious metal, since vaccine hopes and, lastly, a vaccine won't spur the demand needed to initiate higher consumption and economic growth, in general.
In addition to that, Gold finds itself in quite a positive position for Long engagements, risk-reward wise: the precious metal is about to enter a historically known seasonal bullish window in December and January which could drive the price of the yellow metal back towards 2,000 USD.
In 2015, the value of Gold fell by 10.4%, in 2016, it increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, and in 2019, it increased by 18.9%, meaning that in five years, it was up by 28%.
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