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Gold Prices Set to Decline on Vaccine Shocks
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Gold Prices Set to Decline on Vaccine Shocks
The US drug company Pfizer announced that the vaccine developed against the Covid-19 appeared to be effective, which fluctuated the financial market wildly. Gold and crude oil staged strikingly different performance in commodity markets, with oil prices soaring at the expense of gold prices. The jump of oil prices in the short term is attributed to the rising oil demand stimulated by the revenge recovery in the aviation and tourism sector. But the slump of gold prices remains a mystery to which some investors have not yet found the key.To get more news about WikiFX, you can visit wikifx.com official website.
As early as August 11, gold prices also plummeted when Russia announced the registration of a new coronavirus vaccine. Thus the languish gold this time dragged by Pfizer's vaccine news is just a repeat of history. Ostensibly, the rising risk aversion punished gold in parallel with JPY and CHF. But in a deep sense, Pfizer‘s success in developing vaccines will significantly boost the US. The reason is quite simply: Americans are the first to receive the vaccine. It will largely accelerate the country’s economic recovery.
Pfizer's effective vaccine will give more impetus to the US economy that has already shown an outperformance. If the economic recovery sustains, the Fed may get prepared to exit the market and raise interest rates. Gold prices have a good chance to rebound both because the Feds reduction in printing paper dollars (market exit) will swell the greenback and because the risk aversion will be dampened. Notably, the new administration could enact legislation that substantially increases the minimum wage. It will lead to higher inflation and thus reach the inflation target set by the Fed, which is a chance for the US to enter the interest rate hike cycle early but will bring more pressure on gold prices.
For several times I have shared such an opinion that Buffett's purchase of gold mining stocks is not necessarily good for gold prices, but now both the Buffett and ordinary traders are on golds last train or even the wrong train. I firmly believe that besides the above factors, future announcements claimed by other heavyweight pharmaceutical companies worldwide on successfully developed vaccines will trigger the shakeout again in the gold market. At present, spot gold sees its major support standing at $1,848.45, where a breach below will pave the way to $1,703.2