This week could be a critical one for the gold market as numerous issues could come to a head. The yellow metal began the trading week losing gains seen in overnight action as a new vaccine for COVID-19 was reported to be nearly 95% effective. Traders and investors eagerly stepped in to buy the dip, however and drove the market back above the unchanged line. Both a weaker dollar and stronger crude oil prices also affected the yellow metal today, helping to keep prices from falling.
The new Moderna vaccine is said to be 94.5% effective and only requites standard refrigeration compared to the intense cold required by the latest vaccine produced by Pfizer. With some 11 million virus cases and hospitals that are quickly reaching or already at capacity, news of an effective vaccine could not arrive fast enough. Although it may take several months for the vaccine to become widely distributed, some investors are already looking towards life getting back to normal in the year ahead.
The vaccine news sent stocks sharply higher, and equity markets finished the day at their highs for the day. The strength seen in stocks recently could pave the way for more upside ahead, and alternative asset classes such as gold could see investors take a breather as they look to participate in equities and risk assets. Any pullback seen in gold is likely to remain shallow, however, as the overall effects of the viral pandemic have yet to be seen. Although the economy may stage a rapid recovery once the vaccine hits and the virus is stabilized, the negative effects of the pandemic could take months or longer to work their way through the global economy. Today’s Empire State manufacturing data are a prime example. The New York Fed reported that manufacturing declined sharply, from an October reading of 10.5 to a November reading of 6.3. The November reading was far below consensus estimates and countered increasing optimism over the global economy in the months ahead.
In addition to the viral pandemic, investors are also watching the President Trump campaign for any further activity on what it has called a botched election. Despite Trump still refusing to concede the election, he has seemingly acknowledged that Biden is the winner. That has not stopped Trump from preventing a smooth transition, however, as his campaign has yet to release the necessary funding for the Biden transition to take place. Without a smooth transition of power, more Americans could be affected by the COVID-19 virus. Trump’s unwillingness to pass the torch smoothly could cost lives and may increase the pressure on the President to hand over power quietly and without hesitation.
The gold bulls scored a bullish outside day up on the daily chart after today’s action, but have significant work left to do to quiet the market bears. The bulls will look to close prices above the November highs around $1966, while the bears may look to drive prices lower to the November lows around $1850.