Gold prices erased earlier gains and fell from 8-week highs as the Georgia Senate runoffs ran into tight races in Asia-Pacific mid-day trading. Similarly, copper prices suffered a minor pullback after hitting a 7-year high on Tuesday, backed by stronger US ISM Manufacturing PMI readings and solid demand from China.
The US Dollar index rebounded from a two-and-half year low as Democratic leads in the two races initially narrowed, dampening the prospect for a Democratic sweep that may enact President-elect Joe Biden’s legislative priorities including fiscal and infrastructure spending. Uncertainties surrounding the runoff election results created much uncertainty that markets tend to dislike, resulting in a broad ‘risk-off’ sentiment and heightened volatility.
In the medium term, however, election results may again prove to be a short-term catalyst for precious and base metal prices amid a cyclical recovery in global demand into 2021. This may underpin a medium- to long-term rally in base metal prices, including copper, nickel and iron ore. Purchasing managers indexes showed continues expansion in world’s largest economies including the US, EU, China and the most part of the ASEAN (Association of Southeast Asian Nations) as shown in the chart below. The US ISM Manufacturing reading came in at 60.7 versus forecast of 56.6, marking its highest reading seen since August 2018.
Gold prices have likely broken above a “Descending Channel” and entered into a bullish channel (chart below). Prices have formed consecutive higher highs and lows in December– an encouraging pattern that points to a potential medium-term trend reversal. Piercing through a key chart resistance of US$ 1,910 (the 61.8% Fibonacci retracement) this week has likely opened the door for further upside potential with an eye on US$ 1,940 (50% Fibonacci retracement) and then US$ 1,973 (38.2% retracement).