- Optimism about a covid vaccine shot down gold prices.
- Additional headlines from the medical front, speculation about the Fed, and US retail sales are eyed.
- Mid-November's daily chart is painting a bearish picture.
- The FX Poll is pointing to short term falls but long term gains.
Blinded by the light at the end of the tunnel – gold tumbled in response to a breakthrough in developing a vaccine for coronavirus. The implication is less fiscal and monetary stimulus, yet rising cases in the northern hemisphere may change the picture.
This week in XAU/USD: Shot down by the vaccine, political uncertainty
Pfizer and BioNTech reported a 90% efficacy rate in their COVID-19 vaccine candidate. While the results are preliminary, the outcome seems promising not only for these firms – but also for three other efforts using the mRNA approach.
Gold has been rising on hopes for additional fiscal stimulus, yet with prospects of returning back to normal, the urge for additional funds is weaker. XAU/USD tumbled down in response, dipping below $1,850.
On the other hand, the pandemic continues hitting the northern hemisphere, from rising cases in Japan, through increased European deaths and record hospitalizations in the US. Jerome Powell, Chairman of the Federal Reserve, reiterated the need for more support from both central banks and governments.
What about the fiscal stimulus? Democratic candidate Joe Biden won the elections, but his party is unlikely to have a majority in the Senate, needed to pass ambitious support to the economy. Control of the upper chamber hinges on two runoff races in Georgia, due only in early January.
While President Donald Trump has not conceded, he has ordered the White House to step back from talks about a new relief package, leaving the task to Republican lawmakers, who seem reluctant to strike an accord with Democrats. The stalemate in Washington has also put a lid on gold prices.
Next week in Gold: Pharma in focus
Who will be the next pharmaceutical firm to publish results from its Phase 3 trial? Massachusetts-based Moderna seems to be the front-runner. If its efficacy levels are similar to those of Pfizer/BioNTech, the yellow metal is set for another hit. The firm hinted that the fast spread of coronavirus in the US exposed more of its trial participants to the disease.
XAU/USD traders would be wise to continue following covid statistics, especially in the US. If cases, hospitalizations, and deaths continue their upward trajectory, state governors could impose new restrictions. In turn, that would push lawmakers to get a fiscal relief package out the door – perhaps boosting gold's price.
Overall, the virus is left, right and center, with a rising potential for stimulus serving as a bullish factor and vaccine news boosting the bears. Apart from Moderna, other firms to watch are AstraZeneca and Johnson & Johnson.
The US presidential elections are winding down, with certifications from additional states due out during the week. Republicans are gradually coalescing around President-elect Biden. However, the races in Georgia are gaining traction. If Dems come ahead in opinion polls, it could support the precious metal. However, the margins are likely to be razor-thin, given the minuscule gaps in the first round for the Senate and the presidential race in Georgia – the former Vice-President is ahead by only 0.28%.
Retail sales stand out on the economic calendar. Expenditure figures from China kick off the week. An ongoing recovery in the world's second-largest economy implies higher demand for gold. Consumption figures in the US are critical for the economy. Yet, if the comeback remains robust, it would weaken the case for an injection of federal funds, potentially weighing on the metal.
Here are the key events for gold on the economic calendar:
XAU/USD technical analysis
Gold has dropped below the 50-day and 100-day Simple Moving Averages and still suffers from some downside momentum – bearish signs. On the other hand, XAU/USD is trading above the all-important 200-day SMA.
Support awaits at $1,860, which was a cushion in late October. The next level to watch is $1,850, now a double bottom after halting the decline in November and September. Further below, $1,820 and $1,790 are noteworthy.
Resistance is at $1,905, which is where the 50-day and 100-day SMAs converge. The next cap awaits at $1,935, which held gold prices down twice in recent weeks. The next barrier is at $1,965, which is November's high point. Next up, $1,995 and $2,020 are worth watching.
While rising virus cases could provide room for recovery, excitement about additional vaccine candidates may deal further blows to gold.
The FX Poll is pointing to further pressure in the short term, followed by stabilization in the medium term and then a rally in the long term. Experts seem to have adjusted to the recent fall – all three targets have dropped in the past week.
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