Risk-on Sentiment Presses Gold Prices to Multi-Month Low

Risk-on Sentiment Presses Gold Prices to Multi-Month Low

Trump nudges closer to concede, Yellen’s nomination, Fed’s expectations, and the risk of recovery.

Investors had a sigh of relief on Monday as the general services administration admitted that President-elect Joe Biden is the “apparent” winner in a clear signal that the power transition has already started. The Trump administration took this step after the Michigan Board of state had certified the election results ensuring Biden’s victory in the crucial state.

Yellen’s Treasury

Janet Yellen is expected to be appointed the upcoming treasury secretary in the upcoming Biden’s administration. The former Fed Chair is expected to lead hard negotiations with Republicans to push Biden’s fiscal agenda if they keep their majority in the senate after Georgia's runoff in January 2021.

Markets welcomed the reports of Yellen’s nomination, especially if she is expected to work closely with the Fed.

The Fed Will Go on

The Fed member Evans said on Monday that the US economy is still far away from the full economic recovery of the coronavirus crisis and is expected to keep the interest rates near zero until 2024.

Evans said that the economy will improve after the vaccine’s deployment nonetheless, it won't mean that the Fed will change the current monetary policy and will target better inflation and lower unemployment rates although, the Fed member stressed the need for the Federal government’s help to the economy.

Buy the Dip

In light of the above combined with the announcement of AstraZeneca’s coronavirus vaccine being cheaper to produce and easier to distribute with 90% effectiveness, the market’s risk sentiment has improved, and equities closed on Monday in the green.

Investors focused on cyclical stocks that would benefit from returning to pre-COVID 19 life, as some officials in the US expected to recover normal life by May 2021.

Stock Market

Change %

S&P 500

+1.2 %

Dow Jones

+1.7%

NASDQ

+0.5%

Japan 225

+0.9%

DAX 30

+0.6%

FTSE 100

+0.1%

CAC 40

+0.4%

EUR/USD and Main FX Markets

The US dollar index rebounded from a multi-week low at 91.98 then closed in the green with a 0.1% gain. That said, the Dollar index technical outlook remains neutral while above 91.72.

The EUR/USD price stabilized after slightly lower than expected composite PMI Flash numbers of 45.1 of November caused by the partial lockdown, although the manufacturing PMI numbers came in better than expected at 53.6. Markets await the European leaders' video conference on Thursday amid concerns that the ECB will be forced to support the European economy on its own. Technically, the price may fall towards 1.1621 while below 1.1909.

The GBP/USD enjoys optimism of a possible EU-UK free trade deal and the announcement of the UK PM that the lockdown will finish by the end of November. Additionally, the PMI numbers composite, services, and manufacturing came in better than expected on Monday. The pair may be on the way for a test of 1.3460. A close above that level could encourage bulls to rally the price towards 1.3747.

Gold and Oil

The oil price extended gains thanks to a better 2021 economic outlook and improved global demand’s expectations. The Brent Crude rallied on Tuesday to a near nine-month high at $46,67. A close above $46.50 keeps the door open to a rally towards $48.92.

The risk-on sentiment weighed heavily on the Gold as the precious metal hit on Tuesday a four-month low at $1,836. Technically, the market outlook is negative while below $1,861 and the price could be on the way for a test of $1,796. A close below that level could send the price even lower towards $1,747/oz.

Looking Ahead

The Market will follow the ECB President Lagarde’s speech at 3:00 PM (GMT), the US consumer confidence number of November at 4:00 PM, and Fed members Bullard, William, and Clarida’s speeches at 5:00 PM, 6:00 PM, and 6:45 PM respectively.

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