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Gold futures fell on Wednesday, posting their first loss in three sessions and marking their lowest finish in a week, weighed down by strength in the U.S. dollar, as investors awaited further progress toward a new COVID-19 relief package in Congress and a U.S. vaccine rollout.
The session’s pullback comes after the Trump administration proposed $916 billion in aid, including checks for hard-hit Americans, but Senate Majority Leader Mitch McConnell claimed that Democratic leaders were uncooperative.
Meanwhile, the dollar moved up, putting pressure on dollar-denominated gold prices, while bond yields edged up undermining support for gold which does not offer a coupon.
“Gold prices are retreating as the dollar makes a comeback after…McConnell shows no signs yet of capitulating to the Democrats,” said Edward Moya, senior market analyst at Oanda, in a market update. The ICE U.S. Dollar Index DXY on Wednesday was up 0.2% though trades over 5% lower year to date.
Moya also noted that “COVID vaccine approvals in the U.S. appear imminent and a tense week of negotiations over stimulus talks will keep gold prices on shaky ground. ”
The U.K. saw a rollout of COVID-19 vaccines, and the U.S. may soon follow as Food and Drug Administration gets ready to review a Pfizer PFE, -1.61% and BioNTech’s BNTX, -3.59% candidate on Thursday. Vaccine distribution provides hope for a return to a more normal economy, lessening the need for safe-haven investments.
February gold GCG21, -2.11% declined $36.40, or 1.9%, to settle at $1,838.50 an ounce, after rising 0.5% on Tuesday, marking the highest settlement for a most-active contract since Nov. 17, according to FactSet data. Prices settled at their lowest since Dec. 2.
Meanwhile, March silver SIH21, -3.38% shed 75 cents, or 3%, to $23.99 an ounce, after a 0.2% decline in the previous session.
Craig Erlam, also a senior market analyst at Oanda, said the next week will be “very interesting for gold,” with the European Central Bank announcing its latest monetary policy decision Thursday and the U.S. Federal Reserve doing the same next week. “More stimulus is surely on the cards for both — it’s just a question of how much with both economies facing an extremely challenging winter.”
Gold “forced its way” through $1,850, peaking around $1,875, before profit taking kicked in,” he said. Still, “while the prospects for gold may be good if the Fed and ECB overdeliver, I do wonder if we’re going to see a little more downside in the near-term.”
Yields for the U.S. 10-year Treasury note yield TMUBMUSD10Y, 0.939% weighed on the commodity, rising over 2 basis points to 0.93%. Rising yields can undercut appetite for precious metals which don’t offer a coupon.
Meanwhile, bullish gold investors say that a persistent weakening trend in U.S. dollars, which many commodities are priced in, will underpin higher values for gold, silver and other precious assets that are purchased using weaker currencies.
“The dollar will weaken in 2021 and gold’s negative correlation will reassert,” Stephen Flood, director of bullion services at GoldCore in Dublin, told MarketWatch. This could push gold to new heights in the first or second quarter, “as investors seek safety from a growing inflation threat, and concerns regarding lofty asset prices in general.”
“Ultimately, the growing debt problem is the largest mega trend on the table,” with recent reports placing the global debt burden now at $272 trillion,” he said. “We see this as massively gold positive as such imbalances expose the systemic risks of the entire financial apparatus and will drive investors to invest in gold as de facto insurance premium to help negate the risks of a new financial crisis.”
Among other metals traded on Comex, March copper HGH21, -0.11% edged up by 0.4% to $3.5135 a pound. January platinum PLF21, -3.25% fell by 1.8% to $1,018.50 an ounce and March palladium PAH21, -1.97% settled at $2,290.60 an ounce, down 1.6%.
