Gold drops to four-month low as Biden transition looks assured
Gold extended its drop, hitting the lowest level in four months after positive vaccine news, strong economic data and signs the US presidential power transition would pass smoothly.
Bullion prices sank on Monday after trading mostly in a range for weeks. It followed improved economic data from the US and an announcement that a Covid-19 vaccine developed by the University of Oxford and AstraZeneca Plc prevented a majority of people from getting the disease in a large trial.
Gold fell beneath a key level of support as investors shunned the haven asset, and the drop continued on Tuesday, as equity markets rallied. Traders will now have their eyes on the $1,800 an ounce mark, which represents a key support for gold, according to Ole Hansen, head of commodity strategy at Saxo Bank A/S.
“In the short term, short sellers may look for additional stops down toward support at $1,800, the 200-day moving average,” he said. “With vaccine news occupying the headlines, gold is likely to struggle.”
Gold drops to four-month low on virus progress, Biden transition
The metal is now under additional pressure from a reduction of political uncertainty. Following weeks of inaction, the General Services Administration acknowledged Biden as the apparent winner of the presidential election, and President Donald Trump called on his agencies and departments to cooperate. Global stocks advanced for a second day, while both gold and the dollar weakened.
Meanwhile, a sell-off in gold exchange-traded funds resumed on Monday having paused at the end of last week. The funds, which were crucial to gold reaching its August record, have dropped 64 tons of metal since Pfizer Inc announced its vaccine was effective.
Spot gold declined as much as 1.7 percent to $1,805.90 an ounce, the lowest level since July, and was trading at $1,813.31 at 11:18 a.m. in London. Silver dropped 1.4 percent, while palladium also declined. The Bloomberg Dollar Spot Index retreated 0.3 percent.
Still, some market observers remain optimistic about the longer-term outlook for gold.
Biden plans to nominate former Federal Reserve Chair Janet Yellen to serve as his Treasury secretary, people familiar with the matter said. That should boost prospects for fiscal stimulus going forward, which along with protracted low interest rates will provide a supportive environment for gold, according to Carsten Fritsch, an analyst at Commerzbank AG.
“After its current losing streak, gold should therefore begin climbing again, even if this may well take some time yet and is likely to start from a lower level,” he wrote in a note.