Gold: Recapturing $1887 is critical for the bulls
· Gold (XAU/USD) plunged 5% and hit the lowest in six weeks at $1850 in Monday’s trading after Covid vaccine optimism lifted economic recovery hopes and downed stimulus demand. The yellow metal is set to remain at the mercy of risk sentiment and US dollar dynamics, FXStreet’s Dhwani Mehta briefs.
· “Gold is attempting a dead cat bounce so far this Tuesday, heading back towards the $1900 mark, as the Treasury yields retrace some of the previous gains and stall the dollar’s advance. The market mood has turned tepid probably on reports that China’s COVID-19 vaccine trial halted in Brazil due to death while the producer Sinovac is investigating the cause of the halt.”
· “Amid a lack of significant macro news from the US docket in the day ahead, the broader market sentiment and dollar’s price action will be closely followed by gold traders. Also, a speech by President-elect Joe Biden, due at 19:00 GMT, will remain in focus.”
· “Gold challenges the bearish 21-hourly moving average (HMA) hurdle at $1887 on its road to recovery from multi-week troughs. Recapturing 21-HMA is critical for the bulls, with the next upside resistance seen at the horizontal 200-HMA at $1902.”
· “On the flip side, acceptance below the key support at $1849, September 28 low, could revive the correction from record highs of $2075.”
· Central banks are unlikely to change their accommodative stance in the near to medium term as it will take time for a vaccine deployment and a pick-up in growth, inflation and labor market, said Lachlan Shaw, head of commodity research at National Australia Bank.
· “If inflation expectations pick up as a result of increased economic activity from the vaccine, that should keep a lid on long U.S. real yields and be a supporting driver for gold.”
· Gold tends to benefit from widespread stimulus as it is considered a hedge against inflation and currency debasement.
· While vaccine optimism boosted risk appetite, uncertainties continued to loom over the impact of surging Covid-19 cases in the United States and Europe.
· “I still think we’ve got more stimulus coming and the Fed will keep rates low, while a vaccine is going to provide that reflationary impulse... That’s why the markets are still holding onto gold,” said Stephen Innes, chief global market strategist at financial services firm Axi.
· Dallas Federal Reserve Bank President Robert Kaplan said on Monday the resurgence of Covid-19 poses risks to the economy, while Cleveland Fed President Loretta Mester said the Fed’s emergency lending programs are still needed.
· Silver rose 0.2% to $24.12 an ounce. Platinum gained 0.2% to $868.45 and palladium was 0.3% higher at $2,484.67.
Reference: CNBC, FXStreet
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