Vaccine bubble may fizzle out soon

Precious metals are heading for the first quarterly loss since 2018. Optimism surrounding vaccines and signs of recovery have dampened the demand for gold as a safe haven asset. Even as leading central banks continue to offer support for economies, the lustre on gold seemed to be little faded on Monday. This week, the of bullion king of India suggested that investors will keep a close watch on the Federal Reserve’s final meeting of the year, with markets widely expecting fresh guidance on its asset-purchase program.

It must be noted that gold prices have recorded year-to-date surge of 22%. This is despite the recent sharp fall in prices during the past month, when it had retreated almost 15%, compared with the highs recorded in the month of August.

Gold turned bearish in the second week of August, following a major bullish trend which lasted for a couple of years. This year, the bullish trend picked up further speed, due to the Coronavirus and the global economic recession, which turned traders towards safe havens.

But the bearish reversal came in August, and gold has been declining since them, pulling down silver as well, where we have an open sell forex signal

Gold prices saw a massive jump which was triggered by the spread of the Corona Virus across the world. With CsOVID-19 declared as a pandemic, investors rushed towards the safe haven asset for surety. The current announcement of pharmaceutical companies in succeeding to create a vaccine to fight against the virus and the subsequent human trials has resulted in a rally in global stock indices, lending hope to investors that normalcy will return soon. However, there is still the lurching uncertainty about when the vaccine would reach the entire world population and how effective it wil be in fighting gainst the virus is yet to be seen.

Gold prices fell 1% on Monday as hopefulness for a faster economic recovery got an incentive from the forthcoming release of COVID-19 vaccines in the United States, but hopes for further fiscal and monetary stimulus capped bullion’s losses. Spot gold fell 0.9% to $1,822.90 per ounce during Monday’s trading session.

Gold was seen weakening over gradual global recovery, strengthening European equities, an extension of Brexit trade talks and with the vaccination of U.S. citizens with a COVID-19 vaccine. But, limiting gold’s losses were reports of a $908 billion U.S. COVID-19 relief plan that could be introduced as early as Monday after a leading Democrat lawmaker suggested his party might be willing to reach a compromise.

With the Fed’s intentions to ease policy by increasing the average maturity weighting of its Treasury purchases following the December FOMC meeting, gold enthusiasts may not need to wait much longer for a convincing move higher.

Gold benefits from its appeal as a hedge against inflation that could result from the unprecedented stimulus unleashed in 2020. Investors now await the U.S Federal Reserve’s two-day policy meeting starting on Tuesday.

The vaccine bubble is going to fizzle out soon as things will take lot of time for complete implementations worldwide. There is a big IF among the vaccine takers, as its side effects rumours are gripping and that might place doubts in the mind of general masses. This could possible trigger gold.

Prithviraj Kothari of RSBL is optimistic and said that gold could rally in 2021 when the vaccine optimism dies down and investors’ focus returns to rising inflation expectations due to the large swathe of monetary and fiscal stimulus the U.S. economy still requires.

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