Gold Price Analysis: Market weighing the significance of the vaccine

• Gold prices are in consolidation following the covid vaccine-related drop.
• The US dollar may have run its bullish course.

XAU/USD is currently trading at $1,862.44 between a low of $1,856.44 and $1,884.47, down some 0.8% on the day at the time of writing.  

The price of the yellow metal has traded in a range of between $1,850 and $1,890 since the slide from the $1,960s, consolidating the move.

The drop came on the back of news that a covid vaccine had proven 90% successful in trials which sent the US dollar higher as markets presumed less US stimulus would be required and for a shorter time frame.  

Digging deeper, analysts at TD Securities explained, noting that  the news on the vaccine sent ten-year yields to their highest since the pandemic began, ”the rise in yields has been accompanied by strengthening in equities and tighter credit spreads, keeping financial conditions uber-loose, which raises questions as to why the Fed should intervene.”

Key points

”In this context, we argue that the Fed’s Flexible Average Inflation Targeting framework has changed the game “” policymakers are actively attempting to stimulate inflation with a period of overshooting, which should keep uber-easy policies in place for the foreseeable future.”

”We argue that a vaccine should ultimately be a boon for gold bugs, as the Fed could keep nominal rates capped while inflation expectations could firm further as a result.”

COVID spread  uncontrolled

On the other hand, and somewhat ina more simplistic way to look at the current circumstances, in  reflection, there are still many question marks about the production, distribution and actual performance of the vaccine.

So much so, that considering the spread of the virus, and noting that nearly every US state is now classified as having an uncontrolled spread of the virus, according to covidexitstrategy.org,  central banks and governments are will have to keep fiscal and monetary policies uber-easy.

Therefore, the recent surge in the greenback can be presumed to have run its course which would give stability to the precious metals market.

DXY technical analysis

In a prior analysis of the DXY, the upside was projected to not much further than the recent highs as follows:

In today’s market, we are seeing a 50% mean reversion as the high so far some room to the next resistance level to go:

Gold technical analysis

There is room for a recovery towards a 50% mean reversion, although a 38.2%  Fibonacci retracement could be sufficient for bears to step back in again in pursuit of lower lows, contrary to the bullish fundamentals.