Gold loses luster as haven asset reverses gains on projected Democratic Senate wins

Kumutha Ramanathan
·2 min read
gold bar and money,3d render
Gold has reversed its earlier gains as investors focus on US Democrats taking the Senate in Georgia's highly anticipated runoff. (Source: Getty Creative)

The spot gold price has reversed its 2-month gains as markets absorb the news that the dual Senate runoff vote in Georgia is likely to go to Democrats, making it easier for president-elect Biden to pass fiscal policy, bringing stability to the US economy.

The gold price (GC=F) fell 1.7% at around 3.50pm in London, reaching $1,921.20 (£1399.99) an ounce.

The gold price reversed its two-month gains on Wednesday. Chart: Yahoo Finance
The gold price reversed its two-month gains on Wednesday. Chart: Yahoo Finance

US TV networks and the Associated Press news agency are calling the first of two runoff Senate races in Georgia, USA, for Democratic candidate Raphael Warnock, which would unseat Republican Kelly Loeffler. Democratic challenger Jon Ossoff also holds a slim lead over Republican David Perdue in the other race, with 98% of votes counted, according to Reuters.

READ MORE: FTSE soars above 3.5% as markets focus on a potential US Democratic sweep

With less uncertainty over whether Biden will be able to pass policies now becoming more apparent, investors also have less incentive to turn to haven assets, such as gold.

Given gold’s upward trajectory over the past two months, “perhaps the reality of the situation just finally caught up with it after a strong start to the year, with some profit taking exacerbating the move,” said Craig Erlam, senior market analyst at OANDA Europe.

“A blue wave does represent a downside risk for gold given what a major stimulus package could mean for inflation and US interest rates, hence the 10-year moving back above 1%. It may be fine margins in the Senate but it's still a majority and one the Democrats need.”

Adding further pressure to the haven asset is how major economies across the world have been ramping up their COVID-19 vaccine efforts, creating greater market expectation that stability is on the horizon, despite the short-term threat of rising cases.

Gold reached a record high above $2,050 in August 2020. It then consolidated its position just below $1,900 an ounce in December, with analysts initially expecting it to continue its upward trajectory in early 2021.

Watch: Gold prices will be significantly higher in 2021 says expert