By Barani Krishnan
Investing.com - Gold’s scintillating comeback from $1,700 lows hit a wall on Wednesday as Senate Republicans stalled again aid for the coronavirus pandemic that has killed nearly 290,000 Americans and left millions of others waiting in food lines.
Gold for February delivery on New York’s Comex settled down $36.40, or nearly 2%, at $1,838.50 an ounce. That was just over $40 below Tuesday’s session peak of $1,879.75 — which marked a three week high.
The spot price of gold, which reflects real-time trades in bullion and which algorithms and hedge funds use to decide on the next immediate direction, was typically lower than the benchmark futures contract.
At 2:34 PM ET, about an hour after the official settlement on COMEX, spot gold was at $1,834.90, down $40, or 2.1%, from the previous session’s last trade. A drop below $1,835 on the spot could be bearish for gold overall, creating pressure a downside under $1,820, said chartists.
“We could test 1,818 before strong support emerges,” said Sunil Kumar Dixit at SK Dixit Charting in Kolkata, India.
Gold’s meltdown came as outgoing president Donald Trump cut unemployment benefits in his latest offer on Covid-19 aid, even as Republican negotiators led by Senate Majority Leader Mitch McConnell seemed agreeable to liability protection and state aid demanded by Democrats in Congress. It was the latest of multiple twists and turns on the saga since June, and prompted the Democrats to disagree.
“McConnell is not yet showing any signs delivering an olive branch to Democrats,” said Ed Moya, analyst at New York’s OANDA. “The White House and many Republicans want to get a deal done, so it might be a matter of a few more days before McConnell pivots.”
“Gold’s volatility is easing and until it makes a transition to the reflation trade, the long-term bullish outlook might take a while longer to reassert itself.”
Just days ago, gold was emerging from one of its most brutal sell-offs ever after dynamic breakthroughs in COVID-19 vaccines and their potential availability before Christmas caused a run on money in safe-havens.
The yellow metal lost about 6% of its value in November, its most for a month since 2016 and fell into $1,700 territory. Investors have in recent weeks directed money mostly into stock markets and other risk assets such as oil, as those witnessed an epic rally amid the notion that vaccines and therapeutics would soon bring an end to the spread of the coronavirus.
Congress originally passed in March the Coronavirus Aid, Relief and Economic Security (CARES) Act, dispensing roughly $3 trillion as paycheck protection for workers, loans and grants for businesses and other personal aid for qualifying citizens and residents.
In the past few months, however, Democrats in Congress have been locked in a bitter debate with Republicans in the Senate on a successive relief plan to the CARES Act. The dispute has basically been over the size of the next stimulus as thousands of Americans, particularly those in the airlines sector, risked losing their jobs without further aid.
The stalemate appeared broken last week after a bipartisan group of Democrats and Republicans proposed a $908 billion relief bill, which led the two sides to resume negotiations.