Gold tumbles the most since August

Gold dropped below $1,900 an ounce in London as Pfizer said a coronavirus vaccine it’s developing prevented more than 90% of infections in a study, potentially speeding the economic recovery from the pandemic and dimming hopes for additional stimulus.

The results from the large-scale trial represent the most encouraging scientific advance so far in the battle against Covid-19, and pave the way for Pfizer and BioNTech SE to seek an emergency-use authorisation from regulators if further research shows the shot is also safe.

Gold plunged as much as 5.2% following the announcement, its biggest slide since August. Optimism that a vaccine is imminent may slow or diminish further stimulus measures to support economies ravaged by shutdowns to stem the pandemic’s spread. Bullion has now erased all its gains since the US election, when hopes for more fiscal stimulus helped prices break out of a narrow trading range.

“Gold is taking the hardest hit so far on the Pfizer news,” said Janet Mirasola, managing director at Sucden Futures. The selloff was likely a reaction from investors who piled in to gold recently, “convinced that a Biden win be positive for the precious metals and negative for the US dollar,” she said.

Gold slipped below its 100-day moving average, a key technical level that may have accelerated its decline.

Bullion was also under pressure from rising bond yields, with 10-year note futures rising through 1%. “The bond market has seen a dramatic steepening, suggesting a view that perhaps we could see some return to normality in the first half of 2021, which may mean less stimulus and perhaps inducing the Fed to just ease off the gas a little bit sooner rather than later,” said Tai Wong, head of metals derivatives trading at BMO Capital Markets.

Industrial metals, equities and oil prices all initially jumped, with copper hitting a two-year high before erasing gains on the back of a rebounding dollar. Base metals including zinc and nickel held onto gains as investors weighed potential shifts in US trade and energy policy under a Biden administration. Although traders expect Trump-era policies such as steel and aluminum import tariffs won’t go away any time soon, President-elect Joe Biden may seek to de-escalate the broader trade war with China, the top industrial commodities user.

Gold “is an asset that has been attracting investors due to an outlook for stimulus and rock-bottom low rates,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “A potential vaccine reduces the need for economic stimulus as the economies can reopen.”

Prices:

• Spot gold was 4.3% lower at $1,866.94 an ounce at 3 p.m. in New York.
  • Bullion for December delivery on the Comex fell 5% to settle at $1,854.40 an ounce.
• Copper fell 0.4% to $6,916 a ton on the London Metal Exchange after earlier hitting $7,054, the highest since June 2018.