Gold is supposed to benefit from rising fiscal deficits and debts, as well as political uncertainty, right? Well, the past week has certainly dealt dual blows to those perspectives, as the Biden fiscal stimulus plan and a siege on the US Capitol building did little to inspire traders to take the bull by the horns. Gold prices fell almost entirely across the board, and on the back of a resurgent DXY Index, gold in USD-terms (XAU/USD) dropped by -1.12%, compounding the prior week’s loss of -2.59% (notably, which produced a bearish outside engulfing candle on the weekly timeframe).
But it’s not just gold in USD-terms. Gold in GBP-terms (XAU/GBP) fell by -1.29% and is now down by -3.14% on the year. The only gold pair that produced a positive result on the week (+0.35%), gold in NZD-terms (XAU/NZD), is still down by -2.89% through the first two weeks of the year. It’s been rough sledding for gold prices, no matter how you measure.
As discussed in the early-December weekly fundamental gold price forecast, “there has been a material regime change in the fundamental narrative for gold prices.” As the US economy regains its potential thanks to the COVID-19 vaccine development and distribution efforts, it increasingly becomes an uphill slog for gold prices as investors seeking higher yielding and more growth-sensitive assets.
Now that the US Dollar (via the DXY Index) is rising on the back of higher US real yields, it seems that the disappointment around the Biden stimulus plan is dwarfing the overtly dovish tone set forth by Fed Chair Jerome Powell (among others) over the course of last week regarding a potential tapering. Until US real yields start to pullback anew, gold prices may continue to find their footing in the short-term.