Demand for the precious metal could be lifted by lingering uncertainties

After a coronavirus vaccine developed by Pfizer and BioNTech showed a 90% success rate in an interim analysis of its phase three clinical trial, risky assets jumped across the globe on Monday, sending gold prices to six-week lows in the $1.850 area. After a sharp sell-off, the precious metal started to erase losses and turned positive today. Still, the bullion remains below the $1,900 handle that acts as the immediate resistance again.

In the short-term, the yellow metal could extend the recovery as vaccine enthusiasm fades, with stocks showing signs of a bearish correction after an aggressive rally. Investors start to realize that even if the vaccine is proven successful, it may still take months before it becomes publicly available. Meanwhile, the pandemic continues, threatening the already fragile economic recovery.

On the negative side for gold in the longer term is the possibility of a more sustainable economic growth with the help of a vaccine. In this scenario, there will be the prospect of smaller fiscal and monetary stimulus globally, which is the key drag on the safe-haven gold.

Meanwhile, demand for the precious metal could be lifted by lingering uncertainties including the ongoing pandemic, weak economic recovery, and the post-election transition. Besides, Biden’s victory could add to the selling pressure surrounding the US dollar amid hopes of better relations between Washington and its trading partners including China.

From the technical point of view, the bullion could struggle within its recovery phase as despite the waning optimism positive risk sentiment continues to dominate global markets. The immediate upside target now arrives at $1,900. Just above this handle, the 100- and 20-DMAs converge. Once above this area, the short-term technical outlook could improve somehow. On the downside, the key support comes in the $1,850 region. As long as the yellow metal stays above this area, bearish risks are limited.


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