Home Commodities Gold prices extend weekly losses on stimulus concerns and positive vaccine news

Gold prices extend weekly losses on stimulus concerns and positive vaccine news

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  • Gold is 23% in the green year-to-date, thanks to its appeal as a hedge against inflation and the pandemic
  • Analysts believe gold prices could finish the year near $1,900
  • A break below the trend line (the purple line) will open the door for a bigger pullback to at least $1,820

Gold prices are heading for a second consecutive weekly decline on the back of encouraging news about coronavirus vaccine developments and news of the U.S. Treasury’s decision to allow emergency loan programs to expire.

Fundamental analysis: Risk improves to push gold prices lower

U.S. Treasury Secretary Steven Mnuchin sent a letter to U.S. Federal Reserve Chair Jerome Powell, saying the $455 billion allocated to the Treasury as a part of the CARES Act should instead become available for Congress to reallocate.

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“If the Fed does start shrinking its assistance programme that could be a bit of headwind for gold again… The monetary debasement argument that has supported gold could weaken,” said Lachlan Shaw,  helm of commodity research at the National Australia Bank.

Gold is 23% in the green year-to-date, thanks to its appeal as a hedge against inflation, Covid-19 outbreak, and currency devaluation and as a result of an unprecedented stimulus brought by central banks to ease the pressure from the coronavirus pandemic.

“It’s going to be a huge bumpy ride (for gold) waiting for stimulus to come in,” said Stephen Innes, head strategist at financial services company Axi. 

“It is now looking at $1,900 into year-end,” he added.

In the meantime, data from coronavirus developments by AstraZeneca and Oxford University showed that there was a robust immune response among people of older age, easing some coronavirus-induced concerns.

Technical analysis: Testing support

Spot gold slipped to $1,852.86 per ounce, before recovering higher to trade around $1,872. Prices are trading around 0.4% higher today on Mnuchin news. The price action is now trapped between two key moving averages on the daily chart as gold traders wait for fresno news on stimulus talks.

Gold daily chart (TradingView)

As it can be seen on the daily chart, a break below the trend line (the purple line) will open the door for a bigger pullback to at least $1,820, while the 200-DMA comes at $1,796 to provide an additional support. 

Summary

Gold was en route towards a second weekly decline in a row, as a result of positive news about coronavirus vaccine developments and U.S. Treasury’s decision to end the lending programs at the end of the year.