Gold futures are rebounding on Tuesday after falling more than $ 90 or nearly 5% in the previous session, as investors refocused on continued monetary policy support from central banks around the world for revive a global economy hit by the pandemic. Gold fell on Monday as optimism over a COVID-19 vaccine increased appetite for riskier assets.
At 13:47 GMT, December gold futures are trading $ 1873.30, up $ 18.90 or + 1.02%.
Strong sell-off Monday, but bullish problems persist
Prices fell more than 5% sometime Monday after US drugmaker Pfizer Inc announced that its COVID-19 vaccine was more than 90% effective based on initial trial results. The news prompted an asset appreciation as investors sold US Treasuries, bought stocks and US dollars. Interest rates skyrocketed and demand for dollar-denominated gold fell.
However, while optimism about the vaccine increased appetite for risk, concerns were raised about a massive rollout of the new vaccine amid lingering uncertainties fueled by rising COVID-19 cases globally. Essentially, this means that the world is still a long way from achieving control of the pandemic.
Central banks cannot back down on the gas pedal for monetary stimulus
“We are a long way from seeing an open change in the easing stance of monetary policy,” said FXTM market analyst Han Tan.
“Central bankers are likely to continue to rely on data to assess recoveries in their respective economies, and would need more concrete evidence beyond mere green shoots of vaccine-related hope before turning their political biases around.”
Short term outlook
Today’s early price action suggests that gold traders are having a reality check on the actual timing of the vaccine and when enough doses can be administered to stop the spread of the virus. While some speculators may be pricing in a return to normalcy in the economy for the first or second quarter of 2021, some gold traders realize that it is likely to take longer than that.
Optimism for Monday’s vaccine may fade when a mass launch of the vaccine occurs amid lingering uncertainties fueled by rising COVID-19 cases globally, but traders should be aware of the possibility of more currents. short-term declines as more positive vaccine News will continue to weigh on gold prices.
Even if there is another strong move to the downside, gold traders know that accommodative central banks will continue to provide support.
On Monday, Dallas Fed President Robert Kaplan said that the resurgence of COVID-19 poses risks to the economy, while Cleveland Fed President Loretta Mester said the emergency loan programs of the central bank are still needed.
In essence, longer-term support will continue to be provided through accommodative central bank policies with higher short-term price increases provided by fiscal stimulus, if it comes at all.
