Gold drops on Moderna vaccine news
Head of Commodity Strategy
Summary: We maintain our bullish outlook for gold and with that the potential for an even greater performance by silver and platinum. The timing of the next move higher however remains highly uncertain with the prospect for additional vaccine news driving a deeper correction than the "weak" one already witnessed. Today's vaccine news from Moderna is likely to be followed by others during the next couple of weeks.
Gold dropped to a low of $1865/oz after Moderna gave its update on the Covid-19 vaccine. Together with the Pfizer/BioNTech and expected announcement from other pharma companies this week, the latest news will increase speculation that we may see a return tp normality sooner than H2 2021. However, the prospect for multiple vaccines arriving faster than anticipated still raising the risk of a policy mistake which may give the reflation trade a comeback sooner than anticipated. With this in mind we do not see this latest vaccine news as a game changer for gold and maintain a bullish outlook.
The key technical support level remains $1850/oz followed by $1835/oz, the 38.2% retracement of the March to August rally.
Precious metal section from our latest Commodity Weekly:
Precious metals’ post-U.S. election rally proved short-lived as the Pfizer vaccine news helped alter the short-term outlook. The dollar reversed higher and bond yields jumped while “safe-haven” technology stocks took a hit with the market instead buying the Russell 200 grouping of small-cap stocks, seen as a barometer of the U.S. economy and its potential recovery. Gold got caught up in this large rotation towards value from defensive assets as it forced a recovery in U.S. real rates, a key driver for gold.
We believe that the vaccine will help improve to outlook for 2021 but in the short term politicians and central bankers are likely to panic as the coronavirus case count continues to rise. Something that was highlighted by three of the world’s top central bankers after warning that the prospect of a Covid-19 vaccine isn’t enough to put an end to the economic challenges created by the pandemic.
Additional stimulus when the world is on the cusp of a scientific breakthrough on the vaccine front will likely drive inflation expectations higher next year. Not only due to an over easy liquidity situation but equally important a rise in input cost from increasing food and energy prices. With this in mind, we expect a rise in longer-dated bond yields will primarily be driven by rising inflation expectations which should leave real yields anchored deep in negative territory.
In addition to this, we still see the prospect for the dollar to weaken. Such an event will not only reduce the appetite for “safe-haven” technology stocks priced in dollars, it may also support higher EM growth and with that a pickup in demand for jewellery which suffered a 29% YoY decline in Q3 according to the World Gold Council.
In conclusion, we maintain our bullish outlook for gold and with that the potential for an even greater performance by silver and platinum. The timing of the next move higher remains highly uncertain with the prospect for additional vaccine news driving a deeper correction than the “weak” one already witnessed.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)