Gold edged higher! Vaccination optimism prevails Fed reinforces dovish economic outlook
2021-02-24


FX168 Financial News (Hong Kong) - Gold prices continue to rise, hovering back above $1,800. Fed Chairman Colin Powell reinforced his previously dovish economic outlook, saying the outlook remains uncertain and supporting gold's rally. However, the new gold vaccination has fuelled optimism that, despite the uncertainty surrounding the new US economic stimulus measures, will continue to put pressure on gold prices and challenge the longer term bullish trend for gold.
 
Gold was little changed at $1,806.50 as of 8:00 a.m. in Hong Kong.
 
Fundamental Analysis: Powell releases dovish outlook second testimony was notable
 
Mr Powell has signalled a willingness to expand bond purchases and promised to give "enough" early signals before buying back easy money, but he still has no control over yields. According to him: "Despite the sharp rise in Treasury yields and rising inflation concerns this year, price pressures remain largely subdued and the economic outlook remains highly uncertain. The economy is still a long way from our employment and inflation goals, and it is likely to take some time before it makes further material progress."
 
'The Federal Reserve is committed to using all of our tools to support the economy and to help ensure that the recovery from this difficult period is as strong as possible,' he added. However, the speech did not address the market's most pressing concern, the surge in long-term Treasury yields in 2021 to their highest level since the outbreak of a new pandemic. But as Treasury yields spiked in the short term, some investors started buying Treasuries in a panic, which temporarily pulled yields back down and helped stabilize the market.
 
Gold investors should be aware that the surge in U.S. Treasury yields has pulled money out of riskier assets, such as stocks and commodities, which in turn poses a challenge for gold buyers as bond coupons rise. Against this backdrop, Wall Street benchmarks closed mixed, with the S&P 500 down 0.20 per cent.
 
Looking ahead to the second testimony, Nathan Sheets, chief economist at PGIM Fixed Income, said: "If Powell is too bullish on rates going higher, the market will take that as an important green light for rates to move higher. "The Fed is satisfied that there is an opportunity for rates to rise because the rise in rates reflects a shift in views on growth and inflation."
 
But he warned: "I think the Fed also needs to be careful not to create and amplify self-sustaining dynamics that push interest rates higher for other reasons. These other reasons are mainly concerns that the economy might overheat, "he said.
 
Fundamental analysis: new crown vaccination optimistic multi - country lifting blockade policy
 
The first practical study of the new crown vaccine showed a 94% reduction in hospitalizations, according to a new review by British pharmaceutical company AstraZeneca. Elsewhere, U.S. policy makers tried to make progress on a long-awaited new stimulus package, but failed to implement it in time, while the political wrangling over the U.S. -China trade war continued.
 
Canada's health ministry said it would decide in the next few days whether to approve the AstraZeneca vaccine. Other countries including Australia, the European Union and the United Kingdom have already authorized the use of AstraZeneca, but under different conditions. Unlike Pfizer and Moderna vaccines, which are based on mRNA technology, AstraZeneca uses a more conventional viral vector vaccine technology. In Asia, South Korea is expected to achieve herd immunization in September. Despite a late start to the new crown vaccination program, South Korea will achieve herd immunization by autumn 2021, the prime minister said.
 
Australia, New Zealand and Israel also announced an easing of activity restrictions aimed at containing the disease, continuing to fuel optimism. The government's aggressive vaccination campaign and the latest figures suggest the epidemic is slowing down, meaning schools will reopen and business guidelines will be relaxed.
 
Looking ahead, gold traders will continue to watch Powell's second testimony from the Federal Reserve to get a clearer picture of the economic outlook. The latest news on America's new stimulus package and vaccine is expected to provide more catalysts.
 
Technical analysis:
 
The downward sloping trendline, which began Jan. 6, is now around $1,813. A new drop would need to start at $1,785 to convince gold bears. A trade above $1759.00 would mark a resumption of the downtrend. If the price consistently falls below $1807.80, it indicates a seller; A sustained break above $1807.80 would indicate a buyer's presence.