Gold Price Analysis: XAU/USD prices firmly supported above $1860 despite positive vaccine updates

• Despite recent positive news regarding Covid-19 vaccines, spot gold prices remain well supported above $1860.
• Low and falling real US yields have been supporting the precious metal complex more broadly on Tuesday.

Spot gold prices (XAU/USD) remain well supported on Tuesday with bulls buying an earlier dip towards $1860 and pushing the precious metal back higher to around $1870. XAU/USD currently trades with gains of just under $6 or 0.3% on the day.   

Positive vaccine news losing its negative sting

Tuesday has seen a number of positive vaccine updates; China’s SinoVac Covid-19 vaccine is said to have an efficacy of 97% in early trials. Moreover, Pfizer’s CEO said he thinks the US FDA will vote to approve the Pfizer/BioNTech vaccine on Thursday and that the company is working on a new formulation that would avoid having to store the vaccine at -70 degrees Celsius. Additionally, AstraZeneca just released its official Phase III results for its Covid-19 vaccine, which confirmed average efficacy of 70.4% shown by early data (62% efficacy in those given two doses and 90% for those given a half dose and then a full dose).

This latest news from AstraZeneca has helped spur minor upside in global equities, with the S&P 500 having recovered into positive territory in recent trade and just about managed to squeeze out a fresh intraday all-time high at 3699.70 (just above last Friday’s 3699.20 previous all-time high). But sentiment in the precious metals market has not been knocked, as has previously been the case on vaccine news over the past month.

Of course, with most market participants now expecting vaccines and a move towards herd immunity by mid-2021, positive vaccine news is now in some ways in line with most investors’ base case. Arguably this limits the scope for further vaccine-related downside for precious metals.

More specifically for precious metals markets, however, it appears as though the focus has shifted back towards falling real yields. Indeed, bond yields on both sides of the Atlantic are seeing a further decline on Tuesday; German 10-year yields are nearing November lows and are back below -0.6%, down roughly 3bps on the day, while US 10-year yields have slipped back towards 0.90% and are also down 3bps on the day. With US inflation expectations largely stable in the mid-1.8%s, real yields have also thus come under further pressure, with the US 10-year TIPS yield dropping to lows since September of under -0.98%.

The main thing here is that inflation expectations remain elevated (which helps underpin precious metals as a hedge against future currency devaluation due to inflation), and that real yields on US bond investments (and bond investments in other countries) remain deeply in negative territory, which boosts the attractiveness of precious metals as an alternative investment.

XAU/USD in short-term upwards trend channel

Since its big move to the upside on Monday, XAU/USD has settled within a short-term upwards trend channel. If spot gold prices continue to the upside, it is likely that a test of the 20 November high at just under $1880, which coincides with the 50-day moving average (DMA), will be next. Above that, the post-initial Pfizer vaccine announcement November high just beneath the psychological $1900 level will be the next area of resistance to watch out for. Conversely, to the downside, September and 9 November lows around the $1850 level will offer support just ahead of gold’s 21DMA at $1847.

XAU/USD one hour chart