Gold down 100 USD but economic outlook still bad

Gold fell nearly $ 100 on a wild morning on Monday, but so far it has remained at critical support levels after Pfizer and BioNTech announced a potential vaccine against the COVID-19 virus. However, some analysts warn that the selling pressure appears to be excessive as there is a lot of uncertainty and liquidity in the market in support of the precious metal. Gold futures last traded at $ 1,855.60 an ounce in December, down 5% from the previous day.

Robin Bhar, an independent commodities analyst, said that while the recent headlines for gold are negative, there are still many investors who are unaware of the potential vaccine. He added that investors should wait for the dust to settle before making any major changes to their gold investment. "When the dust settles, I think I still want to buy gold on the descent," he said. "There is still a long way to go before a vaccine becomes available to everyone.

If everyone can get a vaccine, maybe that is when you want to sell gold," he said. Bhar added the next 24 hours will be critical for the gold market to see if prices can hold critical support levels. So far, gold has managed to hold support at the September lows above $ 1,850. Bhar added that the next major area of ​​support he is watching is around the 200-day moving average at $ 1,794 an ounce. Ole Hansen, head of commodities strategy at Saxo Bank, said he remains optimistic about gold in the short term as well as he anticipates it will take a while for the vaccine to be available to the public. "The virus could go away, but that doesn't mean economic growth will reverse to a dime," he said.

"A lot of damage has been done that cannot be easily repaired or that will take a long time. Hansen added that he was not surprised that the vaccine announcement put gold under significant selling pressure. He added that the news reduced the chances that governments will give more stimulus to financial markets. "Basically, we are seeing some relaxation in the trade we have built over the past six months," he said. "But there is still a lot of uncertainty supporting the new gold regime.

A vaccine is positive news, but it doesn't change history. Though there are changing expectations of new stimulus measures, Hansen said the global economy was still grappling with the trillions of dollars that were pumped into financial markets in the spring. Analysts and economists noted that it took the US Federal Reserve nearly a decade to reverse the stimulus measures introduced during the 2008 financial crisis with limited success.

"The reality is that interest rates are not going to rise anytime soon, and that will continue to be good for gold," said Hansen. "If we see that the world economy is recovering quickly, then there is a possibility that inflation will get a turbo and could lead to significantly negative real interest rates."