Gold set for longest slump since March with ETF assets slipping

"We see downside risks building for gold's price," analysts from Morgan Stanley said in a note, citing higher yields next year in addition to Covid-19 vaccines

Spot gold headed for its longest slump since March, dropping for a fourth straight day as positive vaccine developments spurred investors to unwind holdings in exchange-traded funds backed by the metal.

Holdings in gold-backed ETFs sold off for a fifth straightsession on Wednesday, and have dropped more than 50 tons since Pfizer Inc. announced its coronavirus vaccine breakthrough last week as demand for bullion as a haven waned. The University of Oxford confirmed that the vaccine it’s developing with AstraZeneca produced strong immune responses in older adults, according to study results published Thursday.

Gold for immediate delivery fell 0.4 per cent to $1,864.28 an ounce at 3:39 pm in New York. December bullion futures fell 0.7 per cent to settle at $1,861.50 an ounce on the Comex in New York. Spot silver and palladium also declined, while platinum gained.

“We see downside risks building for gold’s price,” analysts from Morgan Stanley including Alain Gabriel said in a note, citing higher yields next year in addition to Covid-19 vaccines.

The bank lowered its 2021 bullion forecast to an average of $1,835 an ounce.

Others are more bullish about gold’s prospects as central  banks unleash yet more stimulus in the coming months. European Central Bank President Christine Lagarde has promised a forceful monetary stimulus package in December, while the Federal Reserve is primed to act should US lawmakers fail to agree a fiscal aid package soon.

While ETFs are heading for their first monthly contraction this year, that doesn’t change the longer-term outlook for gold, according to Ole Hansen, head of commodity strategy at Saxo Bank A/S.

“ETF flows can often be lagging instead of leading, so while I see the short-term risk of a deeper correction the long-term bullish outlook has not suddenly disappeared,” he said.

“The vaccine can kill the virus but not the mountain of debt that has been accumulated.”