The past week or for that matter, the month of November wasn’t that great for gold. . The price of the yellow metal plunged then from $1,840 to $1,780 last week. Actually, gold prices dropped from a local peak of $1,941.
On Friday, gold broke below the key $1,800 support level to reach 5-month lows. Gold prices plunged over economic recovery, hopes of quick vaccine availability and a smooth White House transition. These same reasons were responsible for pushing the share markets to new record highs.
Well let’s have a look over the reasons for this downside in gold-
Covid-19 Vaccine- The news of the arrival of the vaccine injected the much needed hope in the economy and with things looking on the brighter side, investors decided not to tail on the safe haven asset for too long.
Bit coins- As gold lost its sheen for investors, they started turning their attentions towards Bitcoin which saw a remarkable jump in the prices.
US Election results– President Trump yielding defeat has made people hope for a smooth transition. Thus, the final elections results reduced the uncertainty in the marketplace and improved the outlook of the economy for the investors.
Smooth transition – President-elect Joe Biden announced the beginning of a formal transition of power from Trump’s administration to his. Biden also started to announce nominations for top positions, which served to reduce the risk that a contested election had for uncertainty among investors.
Fed Chief- there are rumours that Biden is likely to tap former Fed Chief Janet Yellen to become the next Treasury secretary. Investors know her and trust her, so they welcomed the possibility of her nomination for a key position in the new administration).
Fiscal Package prospects- Yellen, who is seen as a possible candidate for the Fed Chief post, is expected to be a great supporter of bigger government economic aid. Actually, she has for some time been calling for increased government spending to help combat the recession and has always been concerned about the labor markets, low participation rates and high unemployment. As well, as the former Fed Chief, Yellen will closely cooperate with the US central bank and will listen to the Fed’s calls for a fiscal package. She will, therefore, help sustain high government expenditure to assure that the labor market is recovering. Any for, of possible recovery has led to a downfall in gold prices.
The bullion king of India confirmed that what we really need to focus on is the year end. There are many factors that will play a key role as 2020 comes to an end. Gold may be bullish right now, but we have many other reasons that cannot be ignored and which can turn the table for gold.
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 stimuli this year, and what more can the Federal Reserve do to help, according to analysts. Prithviraj Kothari of RSBL confirmed that the 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.
Any rise in cases will lead to a pressure on medical emergency services and will lead to further restrictions. Jobs markets have suffered due to curfew and these restrictions have been imposed in many parts of US. Further, new restrictions could harm the economic recovery, which is already struggling to recover.
Furthermore, if we get some type of big move against the US dollar, that could have gold turning around as well. Central banks around the world will continue to throw liquidity at the markets ad this will definitely bring gold back into the market.
The next phase of this bull cycle will rely on a lower U.S. dollar and this is really the main, key factor that will allow the price of gold to move much higher.