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James Hyerczyk
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Gold

Gold futures are edging higher on Friday after counter-trend buyers came in to defend the low of its 10-day range. Nonetheless, the market is set to finish lower for a second consecutive week as promising COVID-19 vaccine trials and U.S. Treasury Secretary Steven Mnuchin’s call to end the Federal Reserve’s key pandemic lending program eroded the bullion’s safe-haven appeal to some.

At 12:31 GMT, December Comex gold futures are trading $1863.80, up $2.30 or +0.12%.

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COVID-19 Vaccine Pressure

Gold took a hit earlier in the week after Moderna became the second U.S. drugmaker to announce late-stage successful vaccine trials. This follows a similar announce from Pfizer early last week. In a follow-up move, the U.S. drugmaker said on Wednesday that it was set to apply for emergency U.S. authorization after final results from its vaccine trial showed a 95% success rate with two months of safety data.

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Federal Reserve Stands Ready to Support Economy

Most traders agree that an expansion in the U.S. Federal Reserve’s quantitative easing program in December may weaken the dollar and prove to be a tailwind for gold.

Fed Chair Jerome Powell said on Tuesday the central bank was committed to using all its tools to drive an economic recovery.

Treasury Yields Fall Amid Fed and Treasury Disagreement Over Emergency Funding Program

U.S. Treasury yields declined on Friday after U.S. Treasury Secretary Steven Mnuchin decided to let several of the Federal Reserve’s emergency funding programs on December 31. Falling yields made the U.S. Dollar a less-desirable asset and dollar-denominated gold rose slightly in response to the weaker greenback.

Treasury yields slipped after Mnuchin issued a letter on Thursday that said he would not extend the Fed’s program that used Congress’ CARES Act funds. This reduces the Fed’s ability to support the financial system.

The Fed pushed back on Mnuchin’s decision, saying: “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”

Daily Forecast

The move by Mnuchin could have a bearish impact on gold prices because it eliminates some of the longer-term monetary stimulus that helped underpin gold prices since March.

When this move is combined with the lack of fiscal stimulus, it’s hard to paint a bullish picture for the gold market.

If gold can’t rally when Treasury yields are falling and the dollar is trending lower then this probably means it’s in the hands of strong sellers.

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

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