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Gold spot dives 5.5% on vaccine news


Gold correction on the back of a coronavirus vaccination expected

Stimulus package timing and size remains unclear

Gold supported by lower dollar, lower US real yields, high fiscal deficits

London — Gold sank 5.5% in the spot market on Nov. 9 as investors rushed to liquidate their long position on positive coronavirus vaccine news.

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The price came under intense selling pressure after US pharmaceutical company Pfizer and German biotechnological company BioNTech announced an experimental coronavirus vaccine developed by both companies was found to be more than 90% effective.

"Immunity is expected to last for at least a year and doses could be selectively available in late December and more broadly available by the end of Q2 2021," ED&F Man Capital Markets analyst Edward Meir said in a research note Nov. 9.

The news obliterated gold's Nov. 9 morning gains, when the yellow metal spot price reach around $1,965/oz at 05:37 GMT, its highest price since mid-September, on the hopes of U.S. fiscal stimulus measures resulting from Joe Biden's presidential victory and by a weak US dollar.

The gold spot price, as of 1645 GMT, stood at around $1,855/oz.

"Today's correction on the back of a coronavirus vaccination becoming available soon was expected to happen one day of the other," MKS Dubai managing director Frederic Panizzutti told S&P Global Platts. MKS is a precious metals and financial services company part of the MKS PAMP group.

"Fortunately a vaccination will widely contribute in eradicating the virus, but the global economy will continue to remain affected and weak," Panizzutti said.

Heraeus' global head of trading Hans-Guenter Ritter told Platts that election results are temporarily having less influent on gold after the latest vaccine news.

"At the moment, the [downward] gold price movement is dominated by positive vaccine headlines and higher US yields," Ritter said.

Stimulus package to increase debt

Speaking about a possible further US fiscal stimulus package, Ritter said its timing and size remains unclear should the Senate majority be kept by the Republican Party.

StoneX Group head of market analysis for EMEA and Asia regions Rhona O'Connell told Platts the Senate is the key for the stimulus.

"If the Democrats manage to take the Senate after the Georgia runoff then the taps will be turned on," O'Connell said. "If not then expect more wrangling and a slower pace of recovery."

Commerzbank commodities analyst Daniel Briesemann said it appears that the Senate will remain in the hands of the Republicans.

"This means that it will be hard for Biden to go ahead with his initial plans," Briesemann said. "We think we will see a stimulus package "light" that will nevertheless raise the debt burden of the US. The Fed probably needs to jump in and buy even more Treasuries and T-bills and so on. This would mean the Fed will stick to its ultra-loose monetary policy for a long time."

However, he does not believe this will spontaneously lead to depreciation in the US dollar.

"We expect the [European Central Bank] to expand its monetary policy even further at the next meeting in December," Briesemann said. "This should weaken the euro."

Panizzutti echoed Briesemann's view in regard to the expected stimulus package, saying it is likely to result in an increase in debt.

"Short- to medium-term I believe gold will remain well supported on the back of increasing debt, negative global growth, increased inflation and a weakening USD," Panizzutti said.

ABN AMRO Group FX & precious metals senior strategist Georgette Boele told Platts that gold is supported "by lower dollar, lower US real yields, easy monetary policy and high fiscal deficits."

Briesemann said: "Given the very loose monetary policy of most of the central banks, the low or negative interest rates and low or negative real yields, gold should be in demand as a store of value in the long-term. Biden's victory is just one part in the equation."