Gold closes fractionally higher as the Dow approaches 30,000

It was absolutely a risk-on day favoring stocks and taking the Dow Jones Industrial Average to a new all-time high as the index trades just shy of 30,000. The Dow gained approximately 1.60 %, a total of 470.63 points in trading today and closed at 29,950.44. Equities staged a dynamic upside move today partially based on news from Moderna Inc. which said its vaccine has proved to be 94.5% effective in preventing Covid-19 infections.

This rally is occurring as the pandemic has now reached epic numbers with the number of reported infections now above 54.5 million cases as of today. This includes 11 million cases in the United States, which added approximately 1 million new cases in the last six days. The United States accounts for approximately a fifth of infections globally.

Noteworthy is the fact that within today’s rally in U.S. equities there was a rebalancing in which traders rotated from stay-at-home tech companies, into retail, airlines and other companies that cater to the more traditional consumer-based economy that have been so severely affected by the pandemic.

However, I believe there are two major caveats to this rotation. The news of a viable vaccine has created optimism that there is light at the end of the tunnel. However, the timeline to reach that end is still an unknown. Also, this does not account for the massive economic fallout that will follow.

With millions of Americans currently unemployed and businesses continuing to be affected by the growing number of daily cases the need for fiscal stimulus becomes greater with each passing day. It does not seem likely that there will be any fiscal stimulus bill passed prior to the inauguration in January. Which means that Americans currently facing hardship will only grow in number and the need for a viable aid package become greater day by day.

Gold futures closed slightly higher on the day as it recovers from last week’s dramatic selloff on Monday. As of 4:08 PM EST gold futures basis the most active December contract is currently trading at $1886.80 which is a net gain of $0.60 (+0.04%). It is also likely that the positive news on the vaccine is in such an early stage that the economic fallout will continue to grow. It is for this reason that we believe that gold will form a base at current pricing with major support at $1845.

However, on a technical basis the fact that gold’s 50-day moving average appears to be in a position to cross below its 100-day moving average could be signaling that gold pricing could move lower to the major support level at $1845.

Wishing you as always, good trading and good health,