Gold Edges Lower as COVID-19 Vaccination Offset Hopes for U.S. Stimulus

Gold

The prices of gold fell on Monday as the rollout of the COVID-19 vaccine overshadowed the impact of optimism over the U.S. stimulus package. The vaccination boosted the demand for riskier assets. But the losses of the yellow metal were capped by the 0.2% decline in the U.S. dollar index, which made the bullion less expensive for investors using rival currencies.

Spot gold is currently trading at $1,829.66 per ounce as of 0831 GMT.

Pfizer Inc. and BioNTech SE have started shipping the first batch of their approved vaccines for the U.S., which raised hopes for a quicker economic recovery and lifted the Asian stock markets.

According to OCBC Bank’s economist Howie Lee, the vaccination will overshadow the market impact of the U.S. fiscal relief measures and the Federal Reserve’s policy easing only in the near-term. He expects the bullion to rally in 2021 after the optimism on the COVID-19 vaccine fades and investors’ focus shifts to the rising inflation due to the unprecedented amount of fiscal stimulus released by governments around the world. Gold has gained 21% so far this year on the back of global stimulus and a near-zero interest rate environment.

Senator Joe Manchin, one of the sponsors of the $908 billion COVID-19 relief plan, said the bill could be formally introduced today. But it will be divided into two parts to have a better chance for approval. One is the $748 billion stimulus package for unemployed Americans, small businesses and the distribution of the COVID-19 vaccine. The other $160 billion is for local and state governments and business liability protection.

Meanwhile, British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen agreed to “go the extra mile” to reach a trade agreement. A final Brexit without a deal could have a negative impact on the European economy, financial markets and border relations.

In a related development, the U.S. Commodity Futures Trading Commission (CFTC) reported on Friday that money and hedge fund managers raised their bullish stance in COMEX contracts for the week that ended on December 8. Also, the holdings in the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, dropped by 0.32% on Friday to 1175.99 tons.

The markets will be monitoring the two-day policy meeting of the Federal Open Market Committee on December 15-16. Investors expect policymakers to expand purchases on longer-date Treasuries to control rising yields.