Can the price of gold fall below $ 1,800 next week? Here’s what’s behind the shocking sale

(Kitco News) Precious metals investors were taken for a walk on Friday when gold and silver fell 4% and nearly 10%, respectively.

Rising Treasury yields and the U.S. dollar were the main reasons for this massive surge, analysts told Kitco News on Friday.

Gold posted a daily loss of $ 80 at one point, and February Comex gold futures traded for the last time at $ 1,836.60, up 4.02%. At the time of writing, the ten-year Treasury yield was above 1.1%.

Despite the massive daily losses, analysts say, the lowest move may not be over yet.

“At that time, for the most part, the increase in Treasury yields provided an offer for the dollar, responsible for the sale of gold,” said Edward Moya, senior market analyst at OANDA. “There is too much institutional interest in diversifying from gold. There is a great fear that ETF stakes will fall, as President-elect Joe Biden is expected to be more successful in crushing the COVID pandemic -19. Gold is experiencing intense technical selling. “

The gold space would see $ 100 moves in the next two days, Moya added, telling investors to pay attention to the U.S. dollar.

Greenback cash trading has been surpassing as the dollar’s ​​bearish position reached a one-decade high by the end of 2020, he said.

“There was consensus on Wall Street that the dollar would widen its weakness, with the Federal Reserve being the last central bank to raise rates. But what happened was that the dollar’s bearish trade was overcrowded. We are seeing the dollar rebound and some bets on disconnecting in the process, ”Moya said.

The economic outlook also remains highly uncertain, as the United States reported a loss of 140,000 jobs in December amid tighter blockades and a record number of coronavirus deaths.

“There are two catalysts right now that are making gold sell. Rising bond yields and the troubled economy. This is causing liquidation and cash flight,” said Peter Hug, director Kitco Metals Global Trading. “Friday’s employment data also indicates that the U.S. economy could have problems in the first quarter.”

The market’s usual reaction to bad economic news is cash change, Hug explained. “Money is coming out of gold and going into cash, in the equity market or in ten-year bond yields,” he said. “There has also been a disappointing vaccine deployment. It will get worse before it gets better.”

Cryptographic competence

There are more and more analysts who agree that Bitcoin is stealing the attention of gold and that regular entries that would have gone towards yellow metal due to the safe haven appeal are entering Bitcoin.

For comparison, gold lost $ 125 this week, while Bitcoin rose more than $ 10,000, reaching an all-time high above $ 41,000 on Friday.

“There is a big fundamental change for many investors,” Moya said. Gold’s safe haven trade has taken a back seat to cryptocurrencies, especially bitcoins. When you look at the positioning of gold, you see a diversification of gold into crypts. “

Sean Lusk, co-director of Walsh Trading, noted that Bitcoin is seeing new investors in an argument toward security. “It hurts the appeal of gold for Bitcoin to pull attention,” he said.

However, while the appeal of cryptocurrencies will weigh on gold in the short term, the bitcoin bubble will eventually burst, Moya said. “Inflation coverage is likely to support much stronger gold prices,” he added.

Many analysts agree with this assessment as they see this year’s gold bullish case intact.

“If we look further into the horizon, the Blue Senate should continue to feed an additional disadvantage in the US dollar, giving more support to commodities and especially precious metals. Reflective tail winds and massive growth of the money supply should still translate into strong price action on the yellow metal, ”TD Securities said strategists.

What happens when the price of gold falls below $ 1,800?

Next week’s big sand line will be the $ 1,770 level, which was the November low, Moya said.

“I would like the gold to stay around $ 1,850. Everyone will focus on the November lows. We saw prices go down by $ 1,770. I would be surprised to see $ 1,800 breached,” he said. “You will see that prices will eventually stabilize.”

Lusk added that $ 1,850 drops had been bought in December, which is what could happen now as well.

He noted that many of Friday’s sales have been technical. The $ 1,800-20 should be kept as it was the mid-December lows. A drop to $ 1,800 would be 5% less for the year, ”Lusk said.

If we close below $ 1,828, gold will fall back to $ 1,800, which would open the door to $ 1,778.

LaSalle Futures Group senior market strategist Charlie Nedoss warned that a move below $ 1,820 would cause “stops below and $ 1,800 would be next.”

Data to see

Key data sets to be seen next week include U.S. inflation figures on Wednesday, unemployment claims on Thursday and the PPI, along with retail sales on Friday.

“Retail sales fell sharply in November and another smooth result is expected in December, especially given the stay at home in California, the most populous state in the United States. Google’s mobility data suggests that the traffic of people in the commercial and recreational areas has moderated and with less movement during the holiday season, we suspect there was also less buying of gifts, ”said ING international economist James Knightley.

Federal Reserve Chairman Jerome Powell is also scheduled to speak Thursday next week at the virtual event hosted by Princeton Bendheim University Finance Center.

“Next week we’ll talk a lot about the Fed. And now that ten-year Treasury yields are at 1.10, that could alarm the Fed. They want the curve to accelerate, but they don’t want it to happen in a Maybe the Fed is getting more alert when it comes to monitoring the performance of the curves. They have a growing deficit, they can’t raise rates too much. That will cause problems, “Moya said.