Gold bears down! US Budget Stimulates Optimism over Disease Control Vaccine Efficient in Stopping Growth
2021-02-04


FX168 Financial News (Hong Kong) - Gold prices remain near two-week lows and are struggling to resume gains, weighed down by the strengthening US dollar and equities. The outlook for gold is facing a headwind amid optimism over the ongoing budget in the U.S. Congress, the containment of the epidemic in major global markets, and encouraging new vaccine data. But investors should note that bond signalling is positive, and inflation expectations continue to rise, which will give more guidance.
 
Gold was down 0.02 percent at $1,833.20 as of 8:08 a.m. in Hong Kong.
 
Fundamental Analysis: Dollar, Stocks Strong, New World Vaccine Optimism (Gold bearish)
 
Given the long term overbearish market positioning, the dollar has rallied and is in the process of a long overdue short squeeze. Combined with optimism about risk appetite, further gains in equities and oil are hurting gold demand. Optimism was largely spurred by the ongoing budget adjustment process in the U.S. Congress. Democratic leaders in the U.S. House and Senate have jointly submitted a budget resolution that begins the process of trying to pass President Joe Biden's new fiscal stimulus package without Republican support.
 
The budget resolution presented by House Speaker Nancy Pelosi and Senate Majority Leader Charles Schumer is the first step in the budget reconciliation process. The new budget resolution by Democrats would allow Congress to quickly approve a new $1.9tn bailout package with a simple majority, as Republicans oppose President Joe Biden's plan. The budget reconciliation process lowers the threshold for Senate passage to 51 votes, allowing Democrats to override Republican objections, but the bill could still fail if only one moderate Democratic senator votes against it.
 
Add to that optimism about the new pandemic, with infection rates falling in key developed markets and continued progress in mass vaccination programmes. The new data also show encouraging strength in existing vaccines. The UK's decision to delay a second dose of the AstraZeneca Oxford University coronavirus vaccine has been found to be an effective strategy, according to a new study, CNBC reported. "From 22 to 90 days after vaccination, a single dose of the standard vaccine was 76 per cent effective. The model analysis shows that there is no reduction in protection during the first three months." It is worth noting that the World Health Organization (WHO) investigation team has also successfully ended the quarantine and has carried out tracing research in Wuhan, China.
 
Fundamental Analysis: Bullish Signs for Bond Market (Bullish for Gold)
 
The bond market is showing a more positive signal, while real yields are mixed, with the 5-year Treasury note falling to a record low and the 10-year and 30-year note unchanged. Inflation expectations have risen, to a 30-year balance of payments above 2.15 per cent. Given that gold is seen as a hedge against inflation, this is expected to provide some respite for precious metals such as gold as long as the break-even point continues to move higher.
 
Technical analysis:
 
According to the daily chart, the main trend in gold is down and will change through a trade of $1878.90. The main range is $1771.30 to $1966.80, gold is currently trading on the weak side of its retracement zone at $1829.60 to $1843.90, putting it in a bearish position.
 
Continued volatility below the key Fibonacci level of $1846.00 will keep the downward pressure on prices. The daily chart shows no visible support between the midweek low of $1,830.10 and the Jan. 19 low of $1804.70. A break below $1804.70 could lead to further weakness, with the long-term main target price at $1787.30, a 50% gain.
 
A move above $1846.00 would indicate the presence of buyers, which could trigger further gains to $1869.10. While a breakout of strength could set a bullish tone, any rally is likely to be tough until buyers can clear the main top at $1878.90, the short-term 50% level at $1885.80 and the short-term price.