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James Hyerczyk
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Comex Gold

Gold futures are rebounding on Tuesday after plunging more than $90 or nearly 5% the previous session as investors shifted their focus back to continued monetary policy support from worldwide central banks to revive a pandemic-hit global economy.  Gold tumbled on Monday as optimism for a COVID-19 vaccine lifted appetite for riskier assets.

At 13:47 GMT, December gold futures are trading $1873.30, up $18.90 or +1.02%.

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Steep Sell-off on Monday, but Bullish Issues Remain

Prices fell more than 5% at some point on Monday after U.S. drugmaker Pfizer Inc announced its COVID-19 vaccine was more than 90% effective based on initial trial results. The news fueled a repricing of assets as investors sold U.S. Treasury Bonds, bought equities and the U.S. Dollar. Interest rates spiked higher and demand for dollar-denominated gold fell.

Nonetheless, while vaccine optimism boosted risk appetite, concerns emerged over a mass roll-out of the new vaccine amid lingering uncertainties fueled by surging COVID-19 cases globally. This essentially means the world still remains a long way from gaining control of the pandemic.

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Central Banks Can’t Let Up on Monetary Stimulus Gas Pedal

“We remain a long way from seeing an overt shift away from the easing monetary policy stance,” said FXTM market analyst Han Tan.

“Central bankers are likely to remain data dependent in assessing recoveries in their respective economies, and would need more concrete proof beyond mere green shoots of vaccine-related hope before making an about-turn in their policy biases.”

Short-Term Outlook

Today’s early price action suggests gold traders are having a reality check about the actual timing of the vaccine and when enough doses can be administered to stop the spread of the virus. While some speculators may be pricing in a return to normalcy in the economy by the first or second quarter of 2021, some gold traders realize that it is likely to take longer than that.

Monday’s vaccine optimism may wane over when a mass roll-out of the vaccine will occur amid lingering uncertainties fueled by the rise in COVID-19 cases globally, but traders have to be aware of the possibility of more short-term downdrafts as more positive vaccine news will continue to weigh on gold prices.

Even if there is another strong move to the downside, gold traders know that accommodative central banks will continue to provide support.

On Monday, Dallas Fed President Robert Kaplan said the resurgence of COVID-19 poses risks to the economy, while Cleveland Fed President Loretta Mester said the central bank’s emergency lending programs are still needed.

Basically, longer-term support will continue to be provided by accommodative central bank policies with short-term higher price spike provided by fiscal stimulus if it ever arrives.

For a look at all of today’s economic events, check out our economic calendar.
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