Is Gold About to Bust a Move?

Pictured: gold bullion bars after being inspected and polished at the ABC Refinery in Sydney on August 5, 2020

Gold futures climbed higher Tuesday, marking a second consecutive session gain for December, as lower bond yields and murmurs of a new virus relief package in the U.S. combined to provide some support for bullion. A dip in bond yields and the growing expectation of fresh virus relief in the U.S. kept prices afloat. February gold rose $8.90, or 0.5%, to settle at $1,874.90 an ounce. [A Digital Dollar & Precious Metals: Can They Coexist?]

Prices started to gain traction after a revision of Q3 productivity costs data came in at 4.6%, down from 4.9%. Technical analysts indicate that gold has drifted above a key level at $1,850, which had formerly been viewed as a first layer of support before it puked to its five month low, and is now seen as the resistance level.

“Bullion staged a heroic comeback lately to cross back above the crucial $1850 zone, capitalizing on a combination of falling real interest rates and a softer US dollar,” wrote Marios Hadjikyriacos, analyst at XM. Gold prices dropped through the floor in late November as the development of a successful vaccine undermined the case for metals as a safe haven. Meanwhile, virus hospitalizations in the U.S. reached a new record high Monday.

“Gold prices have found renewed support on the back of falling government bond yields, as investors realize the virus is not going anywhere for a while yet and interest rates will remain low for longer despite the rolling out vaccines in the months ahead,” Fawad Razaqzada, analyst at ThinkMarkets reported

Short-term volatility is somewhat expected, but the long-term fundamentals of what drives gold higher, economic uncertainty and the fear of inflation, remain in place and will likely increase over time. President-elect Joe Biden is also expected to lead to increased gold prices in the future.

The election outcome—or lack thereof—has buttressed financial markets, which is initially a negative for gold. However, it doesn’t change the likelihood that more stimulus, low interest rates, a weakening U.S. dollar and out-of-control debt ratios aren’t going away anytime soon. Biden is expected to offer more stimulus and oversee massive budget and trade deficits, “both of which will accelerate the reasons for owning gold,” he says. Prices for the metal should “trend positive” throughout Biden’s presidency.

“At mid-year, there was still some risk that economies were not going to bounce, and vaccines were not in the picture.” — Peter Grosskopf, CEO of Sprott

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