Gold futures are edged higher on Friday after countertrend buyers defended the low end of its 10-day range. Nonetheless, the market is expected to end lower for a second week in a row, as promising COVID-19 vaccine trials and US Treasury Secretary Steven Mnuchin’s call to end the Federal Reserve’s key pandemic loan program. have eroded the attraction of the safe haven of bullion for some.
At 12:31 GMT, December Comex gold futures are trading at $ 1,863.80, up $ 2.30 or + 0.12%.
COVID-19 vaccine pressure
Gold took a hit earlier in the week after Moderna became the second U.S. drugmaker to announce successful late-stage vaccine trials. This follows a similar announcement from Pfizer early last week. In a follow-up move, the U.S. drug maker said on Wednesday it was set to seek U.S. emergency clearance after final results from its vaccine trial showed a 95% success rate with two months of security data.
The Federal Reserve is ready to support the economy
Most traders agree that an expansion of the US Federal Reserve’s quantitative easing program in December could weaken the dollar and prove to be a positive wind for gold.
Fed Chairman Jerome Powell said on Tuesday that the central bank is committed to using all its tools to drive an economic recovery.
Treasury yields drop amid Fed-Treasury disagreement over emergency funding program
U.S. Treasury yields fell on Friday after U.S. Treasury Secretary Steven Mnuchin decided to leave several emergency funding programs from the Federal Reserve on December 31. Falling yields made the US dollar a less attractive asset and dollar denominated gold edged up in response to the weak dollar.
Treasury yields fell after Mnuchin issued a letter on Thursday saying he would not extend the Fed’s program that used the CARES Act funds of Congress. This reduces the ability of the Fed to support the financial system.
The Fed pushed back Mnuchin’s decision, saying, “The Federal Reserve would prefer that all emergency facilities established during the coronavirus pandemic continue to play their important role in supporting our still strained and vulnerable economy.”
Mnuchin’s move could have a bearish impact on gold prices as it eliminates some of the long-term monetary stimulus that has helped support gold prices since March.
When this development is combined with the lack of fiscal stimulus, it is difficult to paint a bullish picture of the gold market.
If gold can’t rally when Treasury yields fall and the dollar tends to fall, it probably means it is in the hands of strong sellers.
For an overview of all of today’s economic events, check out our economic calendar.