Investing.com – Globally, it posted losses for the second consecutive month since the start of 2021, ending February with the worst monthly performance since 2016. Gold is currently testing important support levels.
The precious metal reached $ 1,912 an ounce, and from there it continued its decline to $ 1,714 an ounce on Friday, losing $ 200 since the beginning of the year.
If gold fails to hold on to levels of 1,725 or 1,700 during the next week, the liquidation will continue.
“Gold has broken previous lows, and all of the weekly moving averages,” says Charlie Neadows, of Lasalle Futures. “We may test $ 1,700 over the next week.”
The main reason for the decline in the price of gold is the increase in its 10-year yield, to the level of 1.6%, which is the highest level in a year, which caused the rise of the US dollar.
The liquidation of gold accelerated due to technical stimuli, with the drop below the 200-day moving average.
“Now, an algorithm has started selling off that is pushing gold further down,” said Peter Hoge of Kitco. “Last Friday, gold was looking for an upward path. But when it reached $ 1,817 on Monday, the 10-year Treasury yield was in the 1.20% range, and now the yield is at 1.50%.”
“What is happening in the US market is a grandiose and unique event. US bond yields are high, while European and Japanese bond yields are still at zero. That is why we expect the dollar index to be stronger than it is based on high bond yields.”
Investors are exiting the stock market and turning to cash, and this is unpleasant news for gold. “In this context, there will be a drop in the stock market, and an increase in bond yields. By switching to cash, all commodities will weaken.”
“Over the next week, $ 1,660 is a strong potential,” says Bart Melick.
Markets are more optimistic about the progress of the stimulus package, and vaccination is faster than expected. Concerns are growing about the role of stimulus in raising inflation and deepening Treasury yields.
Fear, what stems from?
So far, despite all the attempts, the markets are not buying the Fed chairman’s words. Jerome confirms, for the first time after time, to keep interest rates close to zero, and he may hint at controlling the yield curve – the most positive decision for gold – but the markets are in a state of anxiety.
That is, the market sees ambiguity, and fog. It is assumed that this ambiguity is in favor of the hedging instrument – gold – but gold is afraid of something else. The Fed’s reluctance to intervene to stop the rise in Treasury yields may prove that the Fed is saying what it does not do, and is not committed to marrowing in too easy monetary policy. “This is why gold can fall, before any rebound.”
With each basis point higher in bond yields, stocks deepen their losses, as markets are wary of not informing the Fed about what inflation could do.
Daniel Pavilones says: “Gold will rise if Janet Yellen, Secretary of the Treasury, and Jerome Powell, Chairman of the Fed, say that they will prevent revenues from continuing, and talk about their expectations for inflation.” “But in reality there will be no action before the bond yields reach 2%.”
The stimulus package passed by the House of Representatives, there will be more easing, and a strong stock market. But the easing will push the bonds higher.
Nevertheless, the drivers of gold remain, with an economy facing high debt rates and turmoil in stock markets. For now, however, gold remains under threat.
Next week, the markets are waiting for a new talk from the Chairman of the Federal Reserve, Jerome Powell, within the events of the jobs summit from The Wall Street Journal.
We await reports from the Manufacturing PMI from the Institute of Supply Management, the employment report, the ADP report on labor market change, factory orders data, and jobless claims.