Dollar weakness curtails some of the selling pressure in gold

If not for dollar weakness a much greater loss in gold would have been witnessed today.  Dollar weakness and its contribution to lessening today’s decline can be seen by viewing the KGX (Kitco Gold Index). As of 2:50 PM EST spot gold is trading down by $12.10 and is currently fixed at $1827.40. On closer inspection market participants bid spot gold lower by $17.60 today. However, dollar weakness contributed $5.60 in gains, resulting in today’s price decline of $12.10.

As of 2:50 PM EST gold futures bases the most active February 2021 Comex contract is fixed at $1830.50, after factoring in today’s price decline of $13.10 (-0.72%). Currently, the dollar index is down by approximately 3/10 of a percent and fixed at 90.65, which is a net decline of- 0.274 points.

A combination of fundamental factors has fueled the selling in gold today. The fact that a Covid-19 vaccine has been granted emergency use by the FDA, and as of today has begun to rollout to vaccinate the tier 1 vaccine candidates. This includes medical workers and first responders. Following vaccination of those individuals’ vaccinations will move to those who are most susceptible, which are the elderly in nursing homes or group housing for senior citizens. There is a caveat; the vaccine will not be available to the general public until the 1^st or 2^nd quarter of 2021.

The second primary reason market participants have seen gold trade under pressure today is the mounting concerns and doubts as to whether or not The Senate will be able to agree on the second round of fiscal stimulus to aid individuals and businesses most adversely affected by the pandemic. Reports have surfaced by the Wall Street Journal that the House and Senate are close to a compromise that could provide $160 billion of state and local aid and liability projections into a separate stimulus package in an attempt to come to a compromise and possible legislation before the end of the year.

Another important event this week that gold investors and traders will focus upon is the upcoming FOMC meeting which is the last to be held in 2020. Although it is expected that there will be no major policy changes forthcoming from this week’s FOMC meeting which begins on Tuesday and concludes on Wednesday. The one real concern according to Daily-FX is that the “Fed may well continue to talk the US dollar lower, leaving the path of least resistance lower for the greenback.”

There is general optimism that a vaccine is rolling out this week, and the government continues to negotiate a stimulus aid package that could be enacted before the end of the year. However, to date, there is no agreement on the stimulus aid package, and the vaccine will take many months before it’s available to the general public. As these two realizations begin to gain some clarity affecting whether or not an agreement will be reached and a stimulus bill will be passed this year. This unresolved issue along with the unknown amount of time before a vaccine is readily available to the public creates some great unknowns and uncertainty. It is this uncertainty that could quickly change market sentiment in gold which is currently bearish to a bullish demeanor.

Wishing you as always, good trading and good health,