(Kitco News) Has gold found its bottom in the ten-month lows this week? Analysts are waiting to see if the precious metal can hold $ 1,700 an ounce and break free from the chains of Treasury markets.
After plummeting to a low of $ 1,675 on Monday, April’s Comex gold futures recovered above $ 1,730.
On Friday, gold fell on the day, but was able to maintain the level of $ 1,700 per ounce in the face of higher Treasury yields. Bond market sales continued after U.S. President Joe Biden signed his $ 1.9 trillion stimulus bill on Thursday. At the time of writing, April Comex gold futures were trading at $ 1,717.90, down 0.27% on the day.
“Ten-year yields are rising and the curve is increasing even more. Even the short end of the curve has intensified. This could continue if we look at good economic figures and talk about inflation. More hunger for risk entails a increased yields., and it’s not a good story for gold, ”TD Securities’ head of global strategy Bart Melek told Kitco News. “Treasury markets hold precious metals hostage.”
All about yields
Ten-year U.S. Treasury yields topped 1.6% overnight. “Yields are still at stake. We thought $ 1,675 could be the gold minimum. But it all depends on yields and whether they continue to rise,” said RJO Futures Senior commodity broker Daniel Pavilonis.
The $ 1.9 trillion stimulus package is also inflationary. “The market expects consumers to start going out to buy goods with that money,” noted Phoenix Futures and Options LLC president Kevin Grady.
Once everyone is vaccinated in the United States, the yield curve will respond and gold may have difficulties, Melek noted.
In addition, markets are beginning to trade with more stimulus measures, including spending on infrastructure.
“If the impression of money, higher yields and foreign buyers selling our debt are the new MO, there are more reasons to buy emerging markets right now. The stimulus is ultimately a signal to the rest. of the world that we are not in good shape, and we are making a wave to allocate more money to rescue governments, ”Pavilonis said.
Eyes on the Fed next week
The current correlation between yields and gold is that as yields increase, gold goes down. That may change in the future, and once it does, gold may increase further, Pavilonis noted.
“Eventually, that correlation will break. The Federal Reserve admits we see inflation and maybe we should raise rates sooner than we think we would break that correlation. Or even just admit that rising yields are a concern. That would be bullish for in gold, “He said.
The Fed has largely ignored the issue so far, which is why all eyes will be on Fed Chairman Jerome Powell next week as he holds his press conference following the announcement of the type of interest from the central bank on Wednesday.
Even the European Central Bank (ECB) came out on Thursday saying it is concerned about inflation and the printing of money, Pavilonis noted. The ECB said it would use its pandemic emergency purchasing program (PEPP) to stop any unwarranted increase in debt financing costs.
ECB President Christine Lagarde “said indifferently that higher returns could translate into a premature tightening of funding in all sectors of the economy,” Pavilonis described. He also noted that the ECB wants to preserve favorable financial conditions with inflation approaching the road.
“If the Fed came out and said something similar, it would be bullish for gold … The fact that yields are rising may show that the Fed is losing control,” Pavilonis said.
Melek said Powell is unlikely to make any significant comments on the profitability curve. “Powell will assure us it’s too early to talk about rising interest rates. It was pretty ambiguous last time, when yields rose sharply and the appetite for risk didn’t hurt,” he said.
Powell could try to “reduce yields,” Grady added.
In addition, markets will see the Fed’s updated quarterly projections. And ING economists expect an upward revision of GDP in 2021.
“There will also be a lot of interest in the Dot Fots rate of the Fed funds rate. The Fed’s 2023 Dot Plot average changes to a 25 bp rise? Probably not, but the dollar would probably rise if it did. However, a largely unchanged FOMC statement and a press conference by Jay Powell that reiterated that the Fed must go a long way before reducing the stimulus should prevent the dollar from moving too far, “they said. say economists.
Price levels
According to analysts, it is crucial to see how gold behaves next week at around $ 1,700 per ounce. A move toward $ 1,760 would indicate a possible concentration to come, while a drop below $ 1,670 could open the door to $ 1,600 per ounce, they said.
“Gold may be bouncing here and consolidating to move forward; it needs to exceed $ 1,760 to confirm,” Pavilonis said. “The $ 1,670 level is compatible. If that shakes, we could be looking for $ 1,600.”
Gold will have to reach $ 1,700, said Charlie Nedoss, chief market strategist at LaSalle Futures Group. “I want to see what it makes for $ 1,700,” he said.
Melek added that short-term coverage is very likely in the short term. But if the U.S. dollar and yields continue to rise, gold could test $ 1,660 an ounce again next week.
Grady pointed out that right now it is dangerous to be short gold, while at the same time it is also not beneficial to be long gold. “Being short gold in the market that has so much money to print and stimulate is dangerous. But every time gold goes up, it sells. Traders want to look or tend and follow that trend,” he said. “That’s why I’m neutral.”
Other data to see
There will also be a list of new economic data to monitor next week. Data releases will begin with the Empire State NY manufacturing index on Monday and U.S. retail and industrial production on Tuesday.
Building licenses and permits are issued in the United States on Wednesday, followed by the Philadelphia Fed’s manufacturing index and unemployment claims on Thursday.
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