Gold prices recorded their third consecutive week of losses last week as investors favored riskier assets. The change in sentiment has been driven by the better than expected coronavirus vaccine data, and traders believe that a coronavirus vaccine will be here soon. The optimism about the coronavirus vaccine has taken traders’ focus away from the ongoing surge in the coronavirus situation, and they believe that this is only a temporary scenario and the future is bright for riskier assets.
Are Gold Prices Going Up or Down?
Gold is up 17% year-to-date. The precious metal has lost nearly 4.5% of its value this month. In terms of technical analysis, the gold price has dropped below its 200-day Simple Moving Average SMA on the daily time frame, and this means that the bears are in control of the price. It is likely that the current downward trend may push the price towards $1,748, which is where the 50-week SMA is trading on the weekly time frame. The below chart shows the gold price on the daily time frame.
Why Haven’t Gold Prices Tanked?
Gold prices could have seen a more intense sell-off if it wasn’t for the dollar. The dollar index has fallen to a two-year low, and this weakness saved the gold price from falling further. It is important to mention that the dollar index could change its direction if the Federal Reserve changes its stance on monetary policy—an unlikely scenario for the time being because of the coronavirus.
Pfizer PFE +2.9%, Moderna, and AstraZeneca are all working on the coronavirus vaccine; however, each one has its challenges. Fairly recently, AstraZeneca has faced difficult questions about the success of its vaccine, and this has made traders a little cautious. Investors think that there could be several similar challenges for other vaccine makers as well, and this particular factor could support the gold price in the coming weeks.
Why Gold Prices Could Rise
One important factor that we need to keep in mind is that economic activity isn’t going to recover at the pace that the market participants are anticipating. The Fed is well aware of this fact, and hence the Chairman of the Fed, Jerome Powell, has been persistent in his message for acquiring more help in terms of fiscal help—more stimulus.
In addition to this, we also see weakness in the economic numbers. For instance, the U.S. Weekly Jobless Claims number rose for two consecutive weeks. Next week, if we see that the U.S. unemployment number has taken a wrong turn, sentiment can change enormously. This means that the current sell-off may look like an opportunity.
What About Big Players? Are They Buying Gold?
As for institutions, we do not see much support. It is pretty clear that institutions have been selling their gold holdings. The belief among them is that geopolitical tensions will ease under the Biden administration, and the coronavirus situation will improve in the presence of a coronavirus vaccine. The below chart shows gold holdings in total known gold ETFs.
Gold investors are selling their physical gold holdings in ETFs
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