Gold tumbles to four-month low as Biden begins formal transition

Gold dropped to the lowest since July as positive vaccine news, strong economic data and the start of US President-elect Joe Biden’s formal transition undermined the metal’s haven appeal.

Prices tumbled for a second day to just above $1 800 an ounce as the Dow Jones Industrial Average topped 30 000 for the first time. Gold had been trading in a tight range for weeks before the US election, and looked set to break upward immediately after the poll. Then Pfizer announced its Covid-19 vaccine was 95% effective at preventing the disease on November 9, sparking a rotation into risk assets that drove down gold.

“Gold prices are tumbling at a fast clip following a technical break below support,” which suggests that the bullish trade in bullion is further being unwound, in line with investment outflows seen in exchange-traded funds during recent weeks, TD Securities analysts led by Bart Melek said in a note. “Investment appetite for precious metals has significantly suffered, pointing to a reversal in safe-haven flows catalysed by the vaccine announcement.”

Traders will now be watching the $1 800-an-ounce mark, which represents a key support for gold, according to Ole Hansen, head of commodity strategy at Saxo Bank A/S.

“In the short term, short sellers may look for additional stops down toward support at $1,800, the 200-day moving average,” he said. “With vaccine news occupying the headlines, gold is likely to struggle.”

The metal is under additional pressure as political uncertainty eases. Following weeks of inaction, the General Services Administration acknowledged Biden as the apparent winner of the US presidential election, and President Donald Trump called on his agencies and departments to cooperate.

Funds sell off

Meanwhile, a sell-off in gold-backed ETFs resumed on Monday after pausing at the end of last week. The funds, which were crucial to gold reaching its August record, have dropped more than 60 tons since Pfizer’s vaccine announcement.

Spot gold declined as much as 2% to $1,800.47 an ounce, the lowest level since July. Bullion for February delivery on the Comex fell 1.8% to settle at $1 810.90 an ounce. Spot silver dropped 1.6% while palladium fell and platinum rose.

Still, some market observers remain optimistic about the longer-term outlook for gold.

Biden plans to nominate former Federal Reserve Chair Janet Yellen to serve as his Treasury secretary, people familiar with the matter said. That should boost prospects for fiscal stimulus going forward, which along with protracted low interest rates will provide a supportive environment for gold, according to Carsten Fritsch, an analyst at Commerzbank AG.

“After its current losing streak, gold should therefore begin climbing again, even if this may well take some time yet, and is likely to start from a lower level,” he wrote in a note.

© 2020 Bloomberg