Gold jumped near 9-years high on a deluge of COVID-19 vaccines and stimulus on both sides of Atlantic -as-well-as Pacific and the concern of higher inflation, but Gold fades the high early Wed

• Gold slips from the multi-year high early U.S. Wednesday on ‘risk-aversion’ amid renewed U.S.-China cold war tensions (USD recovered)

Gold (XAU/USD-spot) made a high of 1865.87 in the early Asian session Wednesday, around 9-years high on ‘risk-appetite’ amid a deluge of COVID-19 vaccines and stimulus on both sides of Atlantic as-well-as pacific (U.S.-EU-China) and the concern of higher inflation, higher fiscal deficit (debts) to fund such stimulus. The Fed, ECB, BOJ, PBOC and almost all the other major G20 central banks will be in QQE mode until at H1-2021, even after COVID-19 vaccinations.

In brief, Gold is the prime beneficiary of unlimited paper currency and dovish central bank policies (QQE) until at least H1-2021 and a sustainable meaningful economic recovery. Apart from global QQE, gold is also getting the renewed support of Trump trade/cold war tantrum with China/EU ahead of the Nov’20 election coupled with U.S. political uncertainty.

Another factor is the concern of higher inflation if the U.S. and China get decoupled completely with no trade between them, at least theoretically; although practically there is no such probability despite Trump’s rhetoric. U.S. and China are both heavily dependent on each other, especially on trade. Over the decades, China is supplying affordable, yet quality goods (consumer and industrial items), helping inflation in the U.S. and also other developed economies low, paving the way for lower central bank rate (lower borrowing cost).

Now even for the sake of argument, if the U.S. stops importing from China and begun manufacturing all those items domestically, it will cost much higher, may not be affordable for a large section of the American people and will also result in higher inflation, resulting in somewhat stagflation like scenario (lower growth, higher inflation and higher unemployment).

But, in reality, such decoupling between U.S. and China will never happen as China (with almost 1.45B people), world’s 2^nd largest economy, is itself a big market for many U.S. and global MNCs and China may soon become world’s largest economy, surpassing the U.S. (by 2050), as it’s growing over double rate than the U.S. Precisely, this is the reason, Trump targeted China in a trade/cold war, which is also serving a nationalist platform for Trump for his Nov’20 election bid (like in 2016). But ‘Tariff Man’ will never decouple China as Chinese goods are now a great source of revenue (Trump tariffs), being paid by U.S. importers/consumers (not Chinese exporters), helping Trump to balance surging U.S. fiscal deficit, at least partially.

Trump often boasted that he is providing subsidy (grants) to ‘patriotic’ U.S. farmers, who were a ‘target’ of China (previously in the Obama era), by tariffing China. Obviously, these are all election narratives as rural America (farmers) are a sizable vote bank for any political party. But the reality is- Trump is providing tax cuts at one hand and also collecting a part of that by another hand through tariffs.

So, Trump will never decouple China. And moreover, to revert back to sustainable Federal debt (now over $25T and counting), the U.S. needs to find out some other mode of revenues as it can’t print UST/USD forever. Thus, after COVID-19 (2021), the next U.S. President has to go for some types of special corona tax (from super-rich), an additional tax of fuels (gasoline) and also a nationwide VAT/GST (additional sales tax) along with some form of green/digital tax.

On late Tuesday, Trump reiterated that he is open to accept any effective COVID-19 vaccine from any other country, including China if it’s able to develop first. But Trump also said the U.S. is very close to the vaccine. Trump was asked specifically as China is in more advanced in COVID-19 vaccine development or even if it weren’t, would the Trump admin be willing to work with China to bring a successful Chinese vaccine to the U.S.? Trump replied:

Yeah, we’re willing to work with anybody that’s going to get us a good result.  We’re very close to the vaccine.  I think we’re going to have some very good results.  We’re already in testing; nobody thought that would be possible.  Under the old system, it would be a year to two years before you can even think about using the word “testing.”

So I think we’ve had a lot of — and the reason we’re testing: They’ve had good results.  So now we have to see — and the testing also for safety because they have to make sure it’s safe. And I think you’re going to see something over the next fairly short period of time, a maybe very short period of time, having to do with therapeutics and vaccines that are very good.

So we’ll be doing these quite often.  We’re going to keep you abreast of this, and we’ll also talk about some of the other topics like our economy, which is doing well.  The stock market had another good day.  I think they have a good day because they see a lot of positive things happening on this front too.

A few months ago, Trump also expressed his confidence that China will share its COVID-19 vaccine with the U.S. and basically all over the world (as a compensation for the ‘Wuhan Virus’ negligence/incompetence).

Gold jumped almost +3.80% since Friday on hopes & hypes of an effective COVID-19 vaccine and the common EU stimulus fund coupled with another corona relief bill (fund) by the U.S.

On Tuesday, Gold jumped almost +1.44% as the EU stimulus package got finalized after days of suspense. European leaders reached an agreement on a €750B coronavirus recovery fund to support the most affected economies after almost five days of negotiations.

The EU compromised corona relief package will consist of €360B in loans (vs original proposal of €250B) and €390 billion in grants (vs original proposal of €500B) as part of the EU's new €1.83T Multiannual Financial Framework (MFF) regulation, which lays down how much the Common Union can spend over the course of the next seven years.

Further, on Tuesday, the risk-on trade got a further boost in hopes of Chinese fiscal/corona stimulus including corporate tax cut. Gold also jumped amid hopes of mega corona stimulus on both sides of Atlantic-as-well-as Pacific (U.S.-EU-China).

On Tuesday, China’s President Xi said: China will continue with its support for the economy. China needs a proactive fiscal policy and a prudent monetary policy. Taxes and fees would be reduced for businesses to help the economic recovery further. China is planning on achieving good economic growth in 2020.

Earlier, China's National Bureau of Statistics said: We expect the country’s economic recovery to start in the second half of the year. China has strong self-adjusting capabilities.

On early Wednesday, Gold slips from the session high amid ‘risk-off’ mood, after a report that suggested that the U.S. has ordered China to close its 49-years old consulate general in Houston, Texas within 72 hours. The report comes after the Houston fire and police departments confirmed they had received reports of documents being burnt at the consulate at 3417 Montrose Boulevard on Tuesday night. After calls from neighbors, firefighters stood in front of the building but did not enter the complex. On Friday, local media in Houston reported that the Chinese consulate buildings, as well as another Chinese compound where many consulate employees live, were being evicted.

The U.S. State Department spokesperson Ortagus said in a statement on Wednesday:

We have directed the closure of PRC (People's Republic of China) Consulate General Houston, in order to protect American intellectual property and American's (sic) private information. The Vienna Convention states diplomats must respect the laws and regulations of the receiving State and have a duty not to interfere in the internal affairs of that State. The United States will not tolerate the PRC's violations of our sovereignty and intimidation of our people, just as we have not tolerated the PRC's unfair trade practices, theft of American jobs, and other egregious behavior. The United States won't tolerate PRC’s violation of U.S. sovereignty and President Trump wants to base the relationship between Beijing and Washington on reciprocity.

China’s Foreign Ministry spokesman Wenbin said on the Houston consulate issue:

The unilateral closure of China’s consulate general in Houston within a short period of time is an unprecedented escalation of its recent actions against China. We urge the U.S. to immediately revoke this erroneous decision. Should it insist on going down this wrong path; China will react with firm countermeasures.

If we compare the two (countries), it is only too evident which is engaged in interference, infiltration, and confrontation----The U.S. government had been harassing Chinese diplomats and consular staff for some time and intimidating and interrogating Chinese students and confiscating their personal electrical devices, even detaining them. The United States had interfered with China’s diplomatic missions, including intercepting diplomatic pouches and confiscating Chinese items for official use.

Also, another report suggested China may be considering closing the U.S. consulate in Wuhan, where the State Department withdrew staff and their families early this year amid the COVID-19 epidemic. The U.S. embassy in Beijing referred a query to the State Department. Last month, it had said that the United States would soon resume operations at the Wuhan consulate.

Gold was also under stress on ‘risk-aversion’ as Trump said in his COVID-19 briefings late Tuesday: The pandemic will probably; unfortunately, get worse before it gets better. Something I don't like saying about things, but that's the way it is. It's what we have. Trump also dialed back his stance on masks, encouraging Americans to wear them.

Conclusion:

Overall, Gold jumped almost +17% from April (till day) after Fed, ECB, BOJ and other major G20 central banks as-well-as fiscal authorities launched a deluge of ‘unlimited’ COVID-19 stimulus, which also eased the COVID-19 related risk asset sales and USD shortage (as a funding currency in the money market). Since May, the U.S. dollar index (DXY), tumbled almost -4.70%, positive for gold. Dow jumped almost +49% from the March COVID-19 low, basically on Fed’s unlimited QE-4/pandemic QQE, ease of corona lockdown and hopes & hypes of an effective corona vaccine (Trump’s jawboning).

Bottom line:

Gold is now acting as an inflation hedge, but risk-assets (contrary to the earlier perception of safe-haven assets) amid lower bond yields. Gold, the eternal ‘safe haven’ asset is now more attractive than bond. The bond has ‘infinite’ supplies amid the deluge of corona stimulus, but physical Gold has limited supplies. But after the COVID-19 vaccine, the old correlation between Gold and risk-aversion may again return under a normal condition. And after the U.S. election in Nov, we may see less China trade/cold war, even if Trump gets the ticket of the White House for the 2^nd time.

Now Chinese and Oxford vaccines are at the forefront (3^rd stage trials) and may start mass production by Aug-Sep’20. And Trump may not hesitate to accept even the ‘Chinese vaccine’ to kill ‘Chinese Virus’ ahead of the Nov election. Trump will not breach any red line with his anti-China rhetoric.

As per the report, Trump has indicated to aides (nationalists-Pompeo/Kudlow/Navarro) that he doesn’t want to further escalate tensions with Beijing, ruling out additional sanctions on top Chinese officials for now. Trump is practical and cares only for U.S. interest/business/trade despite bellicose anti-China comments for his domestic political compulsion. The same is true for Xi (China) as both are dependent on each other for prosperity and economic growth.

Technical Outlook: Gold Spot (XAU/USD):

Technically, whatever may be the narrative, Gold now has to sustain over 1875 for a further rally to 1890/1905*-1925*/1950 and 1980-2000* in the near term (under bullish case scenario).

On the flip side, sustaining below 1870-1865, Gold may fall to 1840/1825*-1800/1780 and 1755*/1720-1700/1680 in the near term (under bear case scenario).

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