By Barani Krishnan
Investing.com - Gold prices ended a tumultuous week lower as the White House’s back-and-forth on a new coronavirus relief deal hurt those with long positions in the yellow metal.
U.S. gold for December delivery settled at $1,906.40 an ounce on New York’s Comex, down $2.50, or 0.1%.
For the week, December gold lost about 1%, most of it from Tuesday’s 1.8% plunge after skepticism expressed by Treasury Secretary Steven Mnuchin on the chance of reaching a new Covid-19 stimulus deal with House Speaker Nancy Pelosi.
Spot gold, which reflects real-time trades in bullion, was down $6.63, or 0.4%, at $1,902.06 by 1:49 PM ET (17:49 GMT).
“With the consolidation in gold having likely run its course, the yellow metal is now tracking closely to other momentum-crash precedents, which suggest continued range-bound markets and consolidation until the next catalyst,” TD Securities said in a note. “With that said, stimulus-on/stimulus-off newsflow impacts price action on a day-to-day within the range.”
Mnuchin said Tuesday that he did not expect to reach a deal on a new instalment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act with political rival Pelosi before the Nov. 3 U.S. election.
Congress, led by Pelosi and the Democrats, approved the original CARES package in the second quarter of this year, dispensing roughly $3 trillion as paycheck protection for workers, loans and grants for businesses and other personal aid to qualifying US citizens and residents.
Democrats have been locked in a stalemate since with Republicans, who control the Senate, on a successive package to the CARES, arguing over the size of the next relief, as thousands of Americans, particularly those in the airlines sector, risked losing their jobs without further aid. President Donald Trump, who seeks a second term of office in the Nov. 3 election, has accused Pelosi of playing political football over the issue. The House Speaker retorted that any stimulus should be to the advantage of all Americans, and not for Trump’s political expediency.
Following Mnuchin’s remarks on Tuesday, more confusion has reigned on the matter.
The treasury secretary hinted at a modest and “targeted” package, suggesting that Pelosi move some $300 billion of previously allotted money to needy Americans. Trump floated a $1.8 trillion package, while rambling that he might even do more than the $2.2 trillion demanded by Pelosi. Senate Majority Leader Mitch McConnell, meanwhile, said he could only get votes for a $500 billion deal.
Stimulus talks aside, gold has been supported by a spike in European Covid-19 caseloads, as Italy again moved near the danger zone last seen in March while the U.K. and France imposed new movement restrictions. In the United States, new cases are up in 39 of the 50 U.S. states.
“Gold has aligned itself with riskier assets this year so a number of things could be the catalyst for an explosion higher, be it a COVID vaccine, US stimulus deal, perhaps even a smooth uncontested election,” said Craig Erlam, analyst at New York’s OANDA.
“The downside risks remain considerable though which is why we’re increasingly seeing this fence sitting. No stimulus or vaccine announcement - or further setbacks in trials - and a contested election in the coming weeks at a time when COVID cases are rising fast could be very negative for risk appetite and hit gold hard,” said Erlam, adding that a test of $1,800 was still possible.
TD Securities also cautioned that prevailing macro tailwinds could prod hedge funds to liquidate gold. “Indeed, the trigger to catalyze a modest liquidation now stands at $1893/oz. A trigger of this level could potentially mark peak capitulation as even systematic trend followers would be set to liquidate some gold length.”