Gold prices have been in the red for the third consecutive week. Today, the price of this precious metal rose by 0.03% to trade at $1,806. However, it is still on its lowest price level since July 2020. Optimism on economic recovery, coupled with investors attraction to emerging markets’ currencies and U.S. equities, has fuelled the downward trend.
Projected stability in U.S. political and economic front lessens gold’s safe haven appeal
This week’s events in the U.S. political scene have catalysed gold prices’ downward momentum. On 23rd November, Emily Murphy, administrator at the U.S. General Services Administration (GSA), forwarded the letter of ascertainment to president-elect Joe Biden’s team. According to the letter, GSA is ready to commence the presidency transition process.
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The move will see Biden gain access to major agencies, the office of the U.S. president, top secret intelligence briefings, and funding. On the same day, a tweet from President stated, “In the best interest of our country, I am recommending that Emily and her team do what needs to be done with regard to initial protocols, and I have told my team to do the same.”
While Trump has not necessarily conceded defeat, GSA’s actions have supressed political uncertainties in the country. As a result, gold prices have continued to decline as investors’ appetite for the safe haven lessens.
At the same time, positive vaccine news have heightened investors’ hopes of economic recovery. Vaccines from Pfizer, Moderna, and AstraZeneca have shown a high effectiveness in preventing COVID-19.
Notably, the U.S. Food and Drug Administration is likely to approve the emergency use of Pfizer’s vaccine on 10th December. Subsequently, vaccination within the United States will start on the following day. Moderna is also set to file its application.
With the vaccine-fuelled optimism, investors are of the opinion that the pre-pandemic norm is in close sight. As a result, there will be a lessened need for economic stimulus. This projection has reduced the demand for the precious metal as a hedge against fiat currencies; an aspect that has led to the decline in gold prices.
U.S. equities and emerging markets’ currencies attract investors
The stable merging markets’ currencies have attracted investors; a factor that has contributed to the decline in gold prices. The Turkish Lira is one of the currencies that has recorded consistent gains in November. After reaching an all-time high in early November, TRY has declined by about 9.54% to trade at the current TRY7.79. Similarly, ZAR and MXN have been on a downward trend since March 2020.
Investors with a high-risk appetite have also immersed their resources in U.S. stocks; which has lessened gold prices. For example, the Dow Jones ended October 2020 at a dip. However, over the course of November, it has risen by about 11.04% to trade at $29,872.5. A similar trajectory can be observed with the S&P 500. In this month, the index has risen by 9.55% to its current $3633.1.