- Gold Prices – What’s the Outlook?
- The Gold rally hasn’t ended yet – How and Why?
Gold Prices – What’s the Outlook?
The precious metal-faced a severe test last week as Pfizer and BioNTech announced a potential vaccine for the COVID-19 virus.
XAU/USD fell by more than $100 in a single day.
Never the less, gold managed to hold above the key support at $1 850.
The thing is: we don’t know how long the protection provided by the vaccine may last.
Moreover, Donald Trump hasn’t admitted his defeat in the US presidential election.
It means that there’s still plenty of uncertainty and liquidity in the marketplace.
As a result, we have all reasons to expect that traders will use any dips in gold price to add to their bullish positions.
That’s why the medium- and long-term outlook for XAU/USD remains positive.
Is the gold rally party over? Or is there more for the precious metal to push it to new historical levels?
All these questions are natural and logical after the chaos in the markets last week.
Pfizer and BioNTech announced that their (COVID-19) vaccine is 90% effective in preventing the coronavirus, and it is likely that it will be among the first to receive a license from the Food and Drug Administration (FDA).
With the highly awaited news coming out on Monday, the markets were extremely risky and had wild fluctuations.
The Dow Jones rose 4% to a new record high, US 10-year Treasury yields jumped nearly 17% in one day, and oil climbed 8%.
The dollar index also rose by 60 basis points or 0.65%.
As for gold, it gave up $100 of its value and collapsed from $1 965 to $1 850, so some gold lovers started to ask whether the vaccine is enough to kill the coronavirus and the bullish precious metals market along with it.
The market split into two teams: the first sees that the bullish journey for gold is coming to an end, and any current correction is a selling opportunity.
The other thinks that the yellow metal will fly further in 2021 and break the record of $2 075 achieved in August 2020 for the first time in its history.
The Gold rally hasn’t ended yet – How and Why?
After the storm caused by Pfizer’s effective and safe vaccine has calmed, gold prices rose again and traded near $1 900 levels.
Gold resisted the positive news of the vaccine and didn’t drop more than $100 because there are stronger reasons that support seeing gold rise again, including:
1. Coronavirus crisis is far from being a memory
Although the encouraging news that everyone has been waiting for has finally arrived, which is very positive and reassuring, the truth is that we won’t line up tomorrow for the first of two doses of the Pfizer vaccine.
The road to return to normal life is still long.
Pfizer expects to produce only 50 million doses this year, and up to 1.3 billion in 2021.
Logistics services will also pose a difficult challenge for countries because the vaccine must be stored at about -70 degrees Celsius, which is much colder than other vaccines.
That will make manufacturing, transportation, travel, security, and storage difficult.
The first to receive the vaccine will be higher risk people and healthcare providers.
Two doses, 21 days apart, are required. When will the time for the rest of the people to come?
Will factories be able to manufacture sufficient quantities to reach herd immunity before winter 2021?!
It will take some time for this vaccine to be commercially available in developed countries.
Imagine for a moment what it would be like in developing countries? As a result, the management, manufacture, and distribution of the vaccine will delay the recovery of the global economy.
2. Low And Negative Interest Rates Will Remain
Even under the administration of the new President-elect Joe Biden, the Fed is likely to keep interest rates very low, which will hurt the dollar and make gold more attractive.
The very low-interest-rate environment won’t change anytime soon.
Bonds won’t provide a strong return in the coming years, so investors will turn to gold to replace cash and fixed income.
3. More Stimulus And A Weaker Dollar
The global economy still needs more stimulus to face the devastating consequences of the Coronavirus pandemic.
The US Congress is expected to pass a new stimulus package to boost the US economy under the Biden administration, which Trump has refused to approve.
That will increase the dollar’s weakness and raise the attractiveness of gold, as it is a hedge against potential inflation that will result from the unprecedented printing of money by the Fed without any cover.
The secret of the resistance at $1850
Despite the positive news for everyone but gold, it hasn’t dropped much.
Soon the joy of the awaited vaccine ended, and the cloud of the second wave of the Coronavirus returned to dominate the markets.
The United States sets a new record every day in the number of infections, most recently on Friday at 177,200 cases per day.
The situation in Europe isn’t very different, and many countries have returned to restrictions and lockdowns in an attempt to control the situation.
Most scientists and organizations warn of a harsh winter ahead.
All these reasons, and what we mentioned earlier, supported gold and prevented it from falling below $1 850.
As long as gold doesn’t break these levels and reach below $1 800, the reasons for bullish gold are stronger than the bearish ones.
However, if gold reaches $1 800 that should open the door to a further decline.
Gold this week started higher near $1 900 levels at $1 849.
The outlook may be negative for the dollar in the near term.
It may see side moves in both directions for a while before jumping above $2 100 in 2021, as expected.
Goldman Sachs is still sticking to its bullish forecast for gold as the New Year approaches.
The investment bank believes that the target price of gold for 2021 is $2 300 an ounce.
In the end, which team do you support: the bullish club or those who see that the golden year of gold has just ended?