Can gold price fall below $1,700 before selloff is over? Markets eye COVID restrictions, stimulus

Gold is down for the third week in a row but does this mean the bull market is over? Some analysts are beginning to reverse their expectations of $2,000 gold by the end of the year.

Thin holiday trading and stop losses have contributed to gold's move below $1,800 an ounce on Friday.

And even though analysts remain certain that the macro environment is still very supportive of higher gold, some are starting to postpone expectations of new record high prices until next year.

"I disagree with the premise that gold was rallying because of the pandemic. I think gold was rallying because of the response to the pandemic. The stimulus package, the devaluation of the U.S. dollar, low interest rates — those are the reasons why gold rallied to new record highs. I don't think any of those reasons have dissipated," Phoenix Futures and Options LLC president Kevin Grady told Kitco News.

However, Grady no longer expects $2,000 gold by the end of this year, estimating the precious metal to wrap up 2020 below $1,900 an ounce.

The drivers that pushed gold to new highs back in August are still very much there, said TD Securities commodity strategist Daniel Ghali.

"One way to look at this is to see what drives people to buy or sell gold. When we break that down, it comes down to factors that we can actually see in real-time. Things like the U.S. dollar, real rates, nominal rates, etc.," Ghali said. "The price action in gold right now is entirely inconsistent with what's going on in those other markets. And what that tells us is that it is overwhelmingly driven by positioning changes. Most likely, what has happened is that gold prices have breached some threshold that was essentially maximum pain that some market participants could withstand."

Analysts did warn investors last week to expect higher volatility due to thin holiday trading, and this is what the gold market saw. At the time of writing, December gold futures were trading at $1,782.70, down 1.26% on the day.

"This week saw a rollover period. Wednesday was the last day of index roll, meaning that it was the last day for anyone who was long December contract to either liquidate those positions or roll those positions. This is what happened with the selloff at the beginning of the week. It gave people a chance to get out of the trade and revaluate," Grady said.

Traders who got in late and were chasing the market higher are the ones getting out now, said Walsh Trading co-director Sean Lusk.

"What we are seeing here is those who got long last going out first, which means the public who probably chased this thing from $1,920. The formation was pretty steep, so the break was to be severe," Lusk said.

Also, a lot of the attention is being taken up by the crypto space, and it has been hurting gold as well, Grady added. "Some money came out of precious and went into crypto," he said.

Lusk also noted that a lot of people are starting to favor crypto versus gold. "But at the end of the day, what would you rather have an ounce of gold in your hand or something on the screen?" he asked.

 

Eyes on COVID restrictions, stimulus, Fed

In the next few weeks leading up to the Christmas holidays, the market's attention will shift to how severe the COVID-19 restrictions will be, whether there will be any more stimulus this year, and what more can the Federal Reserve do to help, according to analysts.

"Market sentiment will be more likely influenced by news on the timing of a vaccine and concerns about a near-term intensification of Covid containment measures in the wake of Thanksgiving gatherings," said ING chief international economist James Knightley. "The number of cases was rising sharply before last week, but holiday travel and socializing could see an acceleration that necessitates aggressive action to prevent healthcare systems buckling under the pressure of hospitalizations."

These new restrictions could harm the economic recovery, which is far from stable, Knightley said. "Already we can see the jobs market is suffering as curfews and restrictions kick in across more parts of the United States."

Markets are still likely to see problems with getting the COVID-19 vaccines out while the second wave persists, added Lusk. "There is some real potential that this could still hamper this recovery in equities outside of the political situation," he noted.

With no stimulus yet in sight, the big question for gold is whether or not the market can count on the Fed to do more in December, said Ghali.

"More specifically, the change in weighted average maturity that some part of the market expects. That was the focus of the Fed minutes and will likely be the focus of the mid-December FOMC meeting. That's ultimately what will determine whether or now gold prices will resume their upward trajectory in the near future," he noted.

 

What's next?

In terms of how to trade gold from here, Grady said to keep an eye on $1,851 as the upside level and then sell that level the first time gold reaches it. "This was our old low that we broke down," he said.

Lusk, on the other hand, is not ruling out more losses next week before gold begins to recover. "If this market can push down another $60-$70 dollars lower, we could see a move below $1,700 before this is over with," he said.

After that, Lusk projects for gold to begin to climb into 2021, noting that the end of December and beginning of January are seasonally good times for gold.

"We'll go from Mnuchin to Yellen, which is right out of Bernanke school of quantitative easing and money printing. You can look for continued dips to get bought," he said. "Seasonally, as we get into November through mid-December, we see a seasonal weakness. The market was overdue here. I am looking for support levels to hold and then buy into 2021.

 

Data to watch

Next week's data slate is a full one, including the key U.S. nonfarm employment figures from November, scheduled for Friday.

There is also the PCE price index and pending home sales on Monday, ISM manufacturing PMI on Tuesday, ADP nonfarm employment and factory orders on Wednesday, and ISM non-manufacturing PMI and jobless claims Thursday.

 

By Anna Golubova

For Kitco News

Kinesis Money

David

Global stocks hover near record high, oil skids on demand outlook

Stock Markets41 minutes ago (Nov 27, 2020 01:06AM ET)

TOKYO (Reuters) – Asian shares stalled near record highs on Friday as investors weighed renewed doubts about a highly-anticipated coronavirus vaccine against hopes that some of the region's economies will recovery quicker than their Western peers.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.04% but remained with striking distance of a life-time peak touched this week.

Australian shares ended down 0.53%. Treasury Wine Estates (OTC:TSRYF) Ltd tumbled by 11.25% after China slapped tariffs on Australian wine, which is likely to worsen a diplomatic row between Beijing and Canberra.

Japan's Nikkei rose 0.33% in choppy trade.

Shares in China rose 0.13% after data showed Chinese industrial profits surged at the fastest pace since early 2017. South Korean stocks also rose 0.27%.

U.S. S&P 500 e-mini stock futures fell 0.09%. U.S. financial markets were closed on Thursday for the Thanksgiving holiday and will trade on a partial schedule later on Friday.

Euro Stoxx 50 futures were down 0.26%, German DAX futures fell 0.24%, and FTSE futures were down 0.22%, suggesting a soft start to the European session.

U.S. oil prices extended their declines from a seven-month high due to signs of oversupply.

British drugmaker AstraZeneca (NASDAQ:AZN)'s coronavirus drug was touted as a "vaccine for the world" due to its inexpensive cost, but the efficacy of the vaccine is now facing more intense scrutiny, which experts say could delay its approval.

Several scientists have raised doubts about the robustness of results showing the shot was 90% effective in a sub-group of trial participants who, by error initially, received a half dose followed by a full dose.

"With global case numbers having now topped 60 million… there is certainly some rough terrain ahead for the global recovery, and that can create economic scarring," analysts at ANZ Bank wrote in a memo.

MSCI's broadest gauge of world stocks was up 0.08% on Friday, sitting just below a record high reached in the previous session.

Concerns about the distribution of a coronavirus vaccine have placed renewed focus on the current state of the pandemic, which looks grim for many places.

U.S. hospitalizations for COVID-19 are at a record and experts warn that Thanksgiving gatherings could lead to further infections and deaths.

More than 20 million people across England will be forced to live under the toughest restrictions even after a national lockdown ends on Dec. 2. Partial lockdowns in some European countries have also raised concern about economic growth.

The European Central Bank's chief economist highlighted these concerns in dovish comments on Thursday, which pushed European bond yields lower.

The euro, which last bought $1.1924, showed little reaction because currency traders have largely priced in expectations for additional ECB easing next month.

The dollar index fell toward its lowest in more than two months.

The yield on benchmark 10-year Treasury notes fell to 0.8586% as some investors sought the safety of holding government debt.

U.S. crude dipped 1.82% to $44.88 a barrel. Brent crude fell 0.17% to $47.72 per barrel.

Fuel demand is falling due to renewed coronavirus lockdowns, but some oil producers are not complying with agreed production cuts, which raises concerns about oversupply.

Bitcoin, the world's biggest cryptocurrency, edged up to $17,256 on Thursday, but it tumbled by 8.4% in the previous session after failing to take out its record high of $19,666.

The cryptocurrency showed little reaction to a report in the Financial Times that Facebook (NASDAQ:FB) will launch its own Libra digital currency in limited format next year.

Bitcoin has rallied around 140% this year, fuelled by demand for riskier assets.

Global stocks hover near record high, oil skids on demand outlook

 

By Stanley White

Kinesis Money

David

Peter Hug: Should gold and silver still be in your portfolio?

Gold’s medium-term outlook is still constructive, and long-term investors should be using lower prices to re-weight their gold holdings, said Peter Hug, global trading director of Kitco Metals.

“There’s a bridge that needs to be gapped here until this vaccine gives everybody the confidence to go back and have this economy at full bore. That is, to me going to require additional stimulus,” Hug said. “The politicians might not do it, I think that’s going to really hurt the stock market, but if they do do it, I think that’s constructive for gold.”

In six months, it’s more than likely to get more stimulus which would drive gold to new highs. Monetary tightening would not happen before 2022, Hug added.

Hug said that investors should be allocating only a portion of their portfolio into metals and actively re-balance when needed.

“A balanced portfolio is the smartest way to go. Part of that balanced portfolio should hold hard assets, whether that’s gold, whether that’s real estate, whether that’s oil, you need a component of your portfolio in precious metals,” he said.

By David Lin

Kinesis Money

David

Bank of American neutral on gold price – no longer holding $3,000 target

The possibility of three highly effective vaccines in 2021 has changed the landscape for the gold market, according to analysts at Bank of America Securities.

In BoA's 2021 outlook presentation, Francisco Blanch, head of global commodities & derivatives research, and Michael Widmer, metals strategist at the bank, announced a significant shift in their gold forecast for 2021. The bank no longer expects prices to hit the $3,000 an ounce target.

"We are now neutral on gold," said Blanch. "We see a risk of rising long-term interest rates."

Inits updated forecasts, the bank sees gold prices averaging the year around $2,063 an ounce.

"As the global economy opens up, gold faces more challenges, making it tricky to hit $3,000/oz; that said, the ongoing fiscal and monetary stimulus should push the yellow metal above $2,000/oz again," the bank's analysts said in its 2021 outlook report.

The comments come as gold prices continue to struggle to attract some buying momentum as the market test another critical support level. December gold futures last traded at $1,801 an ounce, down 2% on the day.

Bank of American made headlines in April as they expected significantly higher gold prices due to strong momentum and significant monetary policy action from central banks.

In Tuesday's presentation, BoA expects that energy commodities, which suffered significantly in 2020, will outperform next year as the economy recovers from the devastation caused bythe COVID-19 pandemic. At the same time, the analysts are also bullish on industrial metals, particularly copper and nickel.

As energy prices outperform commodities next year, the analysts expect Brent Crude oil to rise to $60 a barrel by the summer.

"We see a world in a cyclical recovery, and that means we could see higher interest rates," Blach said. "We are not outright bearish on gold. Fiscal stimulus programs will keep investors in the market, but eventually, there is a big rotation underway, and in a cyclical commodities rally, there is some likelihood of precious metals becoming lighter."

Widmer noted that rising inflation could be met with higher nominal interest rates. He said the question is whether inflation increases faster than nominal interest rates to keep real interest rates lower.

Blach said that the big shift in their gold outlook is because of the recent vaccine news. He explained that markets were expecting vaccines to be about 60% effective, which would have meant a slower recovery.

He added that the 90% effectiveness of all three potential vaccines could mean that life gets back to normal quicker in 2021.

"I think that's what the markets are starting to pricing and why we've had such a big rotation in such a short period of time," he said.

The bank has lowered its outlook for silver, but they see the metal outperforming gold as its industrial demand picks increases in a global economic recovery.

Widmer added that silver's outlook remains bright as a new focus on green energy could increase demand for solar panels.

"Silver is our preferred play on rising investment in solar panels," the analysts said in their report.

Bank of America expects silver prices to average next year around $29.13 an ounce.
 

By Neils Christensen

For Kitco News

 

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David

Peak in gold price? Precious metal to drop below $1,650 in next two years, says Westpac

Gold's record high of $2,070 an ounce was likely the peak, at least for now, according to Westpac, which sees gold dropping below $1,650 in the next two years.

Risk aversion has peaked, and so has the gold price, Westpac senior economist Justin Smirk said in his November update. "2020 has seen a peak in risk aversion, central bank liquidity, and global uncertainty hence our forecast for gold prices to ease in 2021," Smirk said.

Westpac projects for gold to average below $1,760 an ounce by the end of next year and then drop all the way to $1,633 at the end of 2022.

The situation will turn around only by mid-2023, when the precious metal will begin to climb and rise to $1,848 by September 2024, according to the long-term forecast.

This outlook comes as gold has been on a losing streak amid better economic data and more risk-on sentiment in the marketplace in light of positive COVID-19 vaccine news.

At the time of writing, December Comex gold futures were trading at 1,834.00, down 2.05% on the day after shedding nearly $40 on Monday.

"U.S. equity markets recorded gains, helped by positive vaccine news. Currencies were notably buffeted by stronger U.S. PMI data, which helped the USD bounce off a three-month low. U.S. bond yields rose slightly," Westpac strategists summarized on Monday.

Vaccine developments are "game changers" for the U.S. economy, said Westpac chief economist Bill Evans.

"Our forecasts have been for a fairly 'steady' profile for U.S. Treasuries through 2021 as markets were uncertain about the recovery outlook in the face of competing 'forces' – prospects of a vaccine and the sharp lift in case loads," said Evans on Monday.

The risk-on sentiment seems to be winning the tag of war between positive vaccine news and a sharp rise in coronavirus cases.

"These earlier and more convincing than expected results on the vaccines … point to markets favoring the improving vaccine outlook over the immediate threat from rising case-loads. And as we move through 2021, that dynamic will become more apparent," Evans said.

A more optimistic economic outlook could also pressure the Federal Reserve to begin to curtail its loose monetary policy next year, the chief economist added.

"We accept that the Federal Reserve may remain active in the Q.E. space through 2021 but feel that the optimism associated with the successful distribution of vaccines through 2021 will be the dominant market force while providing the Fed with some scope to ease back on support," he noted.

Westpac also raised its forecast for U.S. 10 year Treasuries through 2021. "We have now brought that rate profile in 2022 forward to 2021 with the 10-year bond rate rising from 0.80% in December through to 1.2% by end 2021," Evans added.

One concern to watch with the introduction of a vaccine is the percentage of the population choosing to get it, Westpac senior economist Elliot Clarke wrote.

"One of the main challenges after approval will be the extent of take–up of the vaccine. For the spread of the virus to be effectively curtailed, at least 60–70% of the population will need to achieve immunity. Even for a highly effective vaccine that 'works' say 90% of the time, that will require a high take up rate in the order of 65–80%. Studies across the U.S. and Europe have seen just over 50% of adults indicating they would accept a COVID–19 vaccine," Clarke noted.

Also, important to keep in mind that the U.S. economy is not out of the woods yet, and it will need more fiscal stimulus.

"Without a meaningful, medium-term focused stimulus package after January's inauguration, the U.S. economy still risks getting caught in a sub-trend growth, high–unemployment environment in 2021 – with considerable downside risks," Clarke said.
 

By Anna Golubova

For Kitco News

Kinesis Money

David

Gold’s big question: Can the bull market outlive a pandemic?

Gold’s record-breaking bull market is facing an existential question after this month’s pharmaceutical breakthroughs: what happens to the rally once Covid-19 vaccines start rolling out?

 

 

 

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David

Is gold price in a zero-sum game? Here's the catalyst needed to go higher

Is the gold market stuck in a zero-sum game as the positive vaccine news is balanced out by high levels of anxiety due to the surging coronavirus cases?

"Investors continue to reassess the risk of stricter containment measures against the optimistic prospects of a vaccine," said ING strategists. "This dichotomy may prove to be a zero-sum game for markets at the moment, and we could see risk sentiment face further stabilization as we head into Thursday's Thanksgiving holiday in the U.S."

This week saw massive gold-backed ETF outflows, which weighed on the precious metal. But the market held its ground at the critical $1,850 an ounce level and managed to end the week on a slightly more positive note, with December futures last trading $1,872.30, up 0.58% on the day.

"Gold prices have been under pressure since the positive vaccine announcement on Nov. 9, but prices have found support on dips below $1,865/oz, at least for now," said Standard Chartered precious metals analyst Suki Cooper.

However, Friday's upside in gold should be taken with a grain of salt as it represents short-covering ahead of the weekend, said Kitco Metals global trading director Peter Hug.

"Today's move to the upside is just a pattern, covering short positions. People don't want to be short on the weekend. Selling usually starts on Monday," Hug noted.

Nevertheless, Hug said that he'd rather be long-gold next week than short-gold. But he warned that trading will be thin next week due to the Thanksgiving holiday, and investors must brace for extreme volatility. "When you have a thin market, you can get a lot of volatility," Hug said.

A similar view was expressed by Afshin Nabavi, senior vice president at precious metals trader MKS SA. "There's more potential on the upside than downside next week," Nabavi said.

Another week has gone by with gold stuck in a range between $1,850 and $1,900. "It's been a hectic week, but at the end of the day, we haven't come out of the trading range. Next week's range remains at $1,850-$1,900," Nabavi noted.

And, according to analysts, the precious metal currently lacks a catalyst strong enough to take it higher or lower.

The biggest and most likely driver that could push gold back above the $2,000 level is stimulus, said Hug. "The market is still waiting for a catalyst. From technical support, $1,850 is still showing resilient support. Catalyst will be a stimulus, and it might not come until January."
 

Biggest risk to gold: pace of ETP redemptions

Until more stimulus is introduced, the most significant risk to gold is the pace of the gold-backed exchange-traded-products (ETP) outflows, warned Cooper.

"Biggest risk for gold prices is the pace of ETP net redemptions, one of our key watch factors. Previous corrections have seen modest net outflows of 20 tonnes. Still, outflows have already exceeded 50 tonnes for the month, on track to be weakest since April 2019," she said on Friday.

As coronavirus cases rise at record levels, government shutdowns could add to people's impulse to jump out of gold and into cash, noted Hug. "When you get that type of uncertainty, human nature is to move into cash. That's why you are seeing liquidation in some of the metal positionings," he added.

More shutdowns in the U.S. could help get stimulus out faster. Still, the additional damage they create could be dangerous for the economy, warned ING economists.

"With Covid cases on the rise across the U.S., we are seeing more states announce new containment measures. In the likes of Michigan, Wisconsin and California, we have seen dine-in restaurants/bars, gyms and places of worship forced to close while other states have introduced curfews/stay at home orders," the economists said. "These measures are likely to spread to other states but may not be enough to limit the latest wave of the virus if evidence from Europe is anything to go by. Rising hospitalization rates after next week's Thanksgiving holiday, historically a time for family gatherings, could hasten more aggressive measures, which would be more economically damaging."

Investors who got into gold and silver in March still have about a $300 and a $10 profit, respectively. "As markets consolidate and don't break out, people start to get impatient and tend to take money off the table," Hug pointed out. "Equity market is still holding. So, many are putting money into bonds for safety; some are rotating into the equity market."

RJO Futures senior commodities broker Daniel Pavilonis added that he also does not see gold breaking out until there is "a firm commitment to getting sizeable stimulus."
 

The long gold trade still intact

Those investors who'd like to be long gold, at least in the medium term, continue to see price dips below $1,860 an ounce as opportunities to buy, said Cooper.

Hug also noted that any weakness in the gold market is an opportunity to add to positions for medium and long-term investors.

There is still a chance that gold could drop to $1,820 an ounce next week, said Walsh Trading co-director John Weyer. "We could still see it break down to $1,820. After that, I'd be looking it a longer play in gold. In January-February, we could see an upward move above $2,000. We need something that breaks us out of thins range," Weyer said.
 

Mnuchin vs. Powell

Markets were also digesting the disagreement between U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell.

Mnuchin wrote to the Fed on Thursday, asking to return "the unused funds to the Treasury." This means that the key pandemic lending programs that the Federal Reserve uses to support businesses, nonprofits and local governments would expire on Dec. 31. In response, the Fed issued a statement, saying that the "full suite" of measures needs to be maintained.

This could potentially hurt the equity markets in the short-term, said Hug.

"You've got Powell saying they are doing as much as they can and the economy needs fiscal stimulus until the vaccine can do its job. Now, you've got Mnuchin coming out and wanting the money back. It appears that the Trump administration is putting as many roadblocks as possible into Biden's way," he said. "This makes markets nervous. The first crack is going to be the equity market and then, depending on the extent of that crack, the short-term effect could be negative for gold."
 

Data to watch

Despite being a short week due to the holidays, the U.S. will see a slate of data, including FOMC meeting minutes from the November meeting and the updated Q3 GDP data on Wednesday.

Other important figures to keep an eye on are the CB consumer confidence on Tuesday, as well as jobless claims, PCE price index, and durable goods orders on Wednesday.

Also, markets will be tracking the Black Friday sales figures to gauge consumer spending during the raging pandemic.

 

By Anna Golubova

For Kitco News

Kinesis Money

David

Sentiment is mixed leading into the EU session

Gold and silver are once again under pressure leading into the EU session. In the yellow metal, the stubborn consolidation low of $1848.84 is still holding but it seems vulnerable to a downside break. Silver also has a support level at a technical trend line but also the $24 psychological level is holding up the price this morning.

Late yesterday and overnight much of the talk has been over the feud between the US treasury and the Federal Reserve. US treasury secretary Mnuchin asked Jerome Powell to return funding for several Fed lending programs that rely on Treasury’s backing. Within minutes Powell and Co. issued their own statement urging that “the full suite” of facilities be kept in place. Recently the Fed has been asking Capitol Hill for help in supporting the economy but for one reason or another, the fiscal support just has not come.

In the backdrop of rising US COVID-19 cases and deaths, Pfizer is expected to file FDA application for coronavirus vaccine on Friday. Elsewhere, the World Health Organization has recommended against using Gilead Sciences’s remdesivir to treat hospitalized patients. There has been a positive coronavirus story overnight as UK heath secretary Hancock said there are encouraging signs that virus cases are starting to flatten in the UK.

Sticking with the UK and we are getting closer and closer to the Brexit deadline with no real resolution. All the talk of contingency plans has dampened the mood in the sterling rally. There are bound to be more Brexit headlines in the session as EU ambassadors are set to be briefed on latest Brexit updates this morning.

The sentiment leading into the EU open is mixed the Nikkei 225 (-0.42%) and ASX (-0.12%) both closed lower but the Shanghai Composite had a decent session closing 0.44% in the black. Base metals are mostly higher with only tin remaining under flat. Lead, platinum, copper and zinc are all treading above 1% higher in early trade.

Looking ahead to the rest of the session highlight include Canadian retail sales and comments from ECB President Lagarde, FOMC Member Kaplan and German Buba President Weidmann.
 

By Rajan Dhall

For Kitco News
 

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Gold price ‘death cross’ – sharp drop signals are flashing warns Gary Wagner

The 100-day and 50-day moving averages for gold have just crossed following months of a consistent differential, and this pattern is indicative of a "sharp drop" down in the gold price, said Gary Wagner, editor of the GoldForecast.com.

“When the short term [average] moves below a longer term chart, it forms an X just like the Skull and Bones,” Wagner said. “Towards December of last year into January of this year, we had an inversion, an inversion meaning that we had the longer term moving average above the shorter term.”

The cross signals a sharp drop in pricing.

Wagner said that the next support level is at $1,845 an ounce.

“The major reason we’re seeing weakness in gold recently is that traders have been anticipating an additional fiscal stimulus bill to be passed by Congress, Senate, and the Administration. Of course, that hasn’t happened, and that has what has pushed pressure on gold.”

 

By David Lin

For Kitco News

 

Kinesis Money

David