Will a Covid Vaccine Kill the Bull Case for Gold?


Gold Price Forecast:

  • Gold suffered a serious decline to start the week, cratering more than 5%
  • Luckily for bulls, price action would suggest technical support helped stave off further losses
  • While a potential covid vaccine has seemingly pushed gold prices lower in the short term, the longer-term effect may be less straightforward

Gold Price Outlook: Will a Covid Vaccine Kill the Bull Case for Gold?

Gold has experienced significant volatility this week after suffering a drastic decline Monday morning on news of a potential Covid-19 vaccine. The development saw a broad rise in risk assets while safe havens like gold and the US Dollar pulled back. As a result, the precious metal sought assistance from technical support around the $1,850 area.

Gold Price Chart: 4 – Hour Time Frame (June 2020 – November 2020)

As the market calmed following the initial price reaction, gold has regained its footing and trades between support around $1,850 and nearby resistance along the $1,920 mark. Confined between two horizontal levels and grasping for its next move, some might suggest the bullish outlook for gold has been eradicated by the coming vaccine. But has it really?

Well, not entirely. While a readily available vaccine on the horizon is an undoubtedly positive development for the world, there is a question of how quickly herd immunity can be reached. Rumored to be 90% effective, such a vaccine would still require a majority of the population to be vaccinated until the hurdle for herd immunity is met. Further still, distribution could prove to be a logistical nightmare and only delay the uptake more.

With that in mind, many of the bullish catalysts behind gold remain. Regardless of vaccination rates, the Fed has reiterated its willingness to remain accommodative into 2023 and both parties in Washington have expressed interest in another stimulus package. Add in a possible infrastructure plan under the Biden administration and it seems the outlook for the US Dollar remains troubled as these plans will increase its supply – an important tailwind for XAU/USD.

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Thus, the development of a coronavirus vaccine may not have killed the bullish outlook for gold, but it has clearly undermined it this week. To that end, the fundamental drivers behind higher gold prices should linger even after a vaccine is distributed so the yellow metal’s outlook remains constructive over the longer-term – in my opinion.

From a technical perspective, the broader formation of a bull-flag remains intact and support around the $1,850 mark appears to have provided a nearby springboard for a quick recovery. Unless gold breaks its current technical pattern by falling below $1,800, I am hesitant to suggest the bigger-picture has changed. In the meantime, follower @PeterHanksFXon Twitter for updates and analysis.

–Written by Peter Hanks, Strategist for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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