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James Hyerczyk
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Gold

Gold futures began the new year with a bang, climbing nearly $50 or more than 2% on Monday, reaching its highest level in nearly two months. Although the U.S. Dollar is trading only marginally lower, gold’s price action suggests buyers are showing a delayed reaction to the recent plunge in the greenback. The fact that the major players are back from holiday also likely contributed to the market’s strength.

At 13:51 GMT, February Comex gold is trading $1945.10, up $50.00 or +2.64%.

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Probably the biggest influences on gold prices today are prospects of tougher restrictions to combat a new variant of the coronavirus. The price action also suggests that the euphoria from the rollout of the vaccines is wearing off as the focus now shifts to the new variant.

Furthermore, the rollout isn’t going as smoothly in parts of the world, especially in the United States, where the country fell well short of its goal to vaccinate 20 million people before the end of the year. This is causing concerns that the pandemic in the U.S. will extend well into 2021.

When the vaccines were first announced, gold traders aggressively sold on the notion that the global economy would recover faster. The numbers now cast doubt on that happening, leading investors into gold on the hopes of additional fiscal and monetary stimulus.

Traders could also be betting on a Democratic sweep in Tuesday’s run-off elections in the U.S. state of Georgia, which will decide which party controls the Senate.

“The chances of the Democrats winning both seats have increased late. This would make it easier for newly elected U.S. President Biden to push through his planned expansionary fiscal policy,” Commerzbank said in a note.

Daily Forecast

I think the potentially stricter curbs in Britain and Japan are providing the most support for gold prices on Monday although they have not dampened demand for higher risk assets.

The Japanese government said on Monday it was considering declaring a state of emergency in and around Tokyo as coronavirus cases climb. I think it’s going to be easier for other countries to make similar moves if Japan follows through with its threat.

Furthermore, I also believe that President-elect Joe Biden will have to seriously consider shutting down parts of the county in order to stem the spread of the virus instead of just throwing money after the problem.

Gold has nearly retraced the entire break from its November 9 top at $1973.30. That move was triggered by the news of the vaccine. A trade through this level will suggest that gold investors have lost confidence in the government’s ability to slow the spread of the virus through vaccinations.

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

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