(Kitco News) Gold is looking at its second month of losses in 2021 as markets end in February and analysts warn of more negative action with precious metals testing critical support levels.
After starting the year at around $ 1,912, the precious metal hit a $ eight-month low of $ 1,714 on Friday, nearly $ 200 since the beginning of the year.
And if the price of gold doesn’t hold at $ 1,725 or $ 1,700 next week, the sale may not be over, analysts told Kitco News. At the time of writing, April Comex gold futures were trading at $ 1,729.10, down 2.61% on the day.
“Gold broke recent lows and all weekly averages,” said Charlie Nedoss, chief market strategist at LaSalle Futures Group. “We could try $ 1,700 next week.”
The main downward triggers for gold have been the 10-year US Treasury yields, which hit a one-year high of 1.6% overnight and a stronger US dollar .
Friday’s sell-off also accelerated with technical selling after the metal fell below the 200-day moving average, said Kitco Metals global sales director Peter Hug.
“Right now, you have the sale of computers speeding up the movement,” Hug said. “When we talked last Friday, we were looking for a rise in gold. But when we reached $ 1,817 on Monday, the ten-year yield was around 1.20%, now it’s in the north. of 1.50% “.
This advance is important in comparison to rising yields in other countries, Hug noted. “It’s significant in the sense that European and Japanese rates remain at zero. You have to compare yields between countries. That’s why you’ll expect the dollar to be stronger than it is right now depending on rising yields.” . explained.
Investors are also starting to go out of equities and move into cash, which is bad for gold, Hug added. “In the context of equity markets, they are starting to get caught in the chin with higher returns. Some people leave the equity market and become cash. That’s why you also have a weakness in commodities,” he said. to point.
Next week, the $ 1,660 level is very possible, said Bart Melek, head of global strategy at TD Securities.
Melek noted that markets are more optimistic, pointing to stimulus progress and faster-than-expected vaccine deployment. The growing concern now is the stimulus of money accelerating inflation and intensifying the yield curve.
Fed, yields and inflation
Until the Federal Reserve can successfully assure markets that it will not raise rates sooner than expected and perhaps even signal that it might consider controlling the control of the yield curve, anxiety will persist.
“As long as there is this ambiguity, they can claim that they will allow inflation to keep warm, but as long as the curve accelerates, gold will have to worry that the Fed is not committed to its ultra-weak policy,” Melek said. . . “That’s why gold could set even lower before bouncing higher.”
Stocks are starting to decline as yields rise, as investors are worried that the Fed is underestimating inflation.
“If U.S. Treasury Secretary Janet Yellen or Fed Chairman Jerome Powell come out and maybe even allude to higher inflation expectations and say they will keep yields down, l ‘Gold will take off,’ ‘said Daniel Pavilonis, RJO Futures’ main commodity agent. “But perhaps yields should rise to 2% before any Fed response.”
The Biden Administration wants to continue to see an easy monetary policy, more stimulus and a strong stock market. “But the more stimulus you get, the more returns you will increase. They have to admit the problem and continue with the stimulus,” Pavilonis noted.
In the long run, it’s a whole different story, as the U.S. economy will have to deal with massive dislocation in terms of business closures, which require low interest rates.
“Finally, we should see gold better, especially with the debt record and the equity market is feeling risky,” Melek said. “Once we settle down and it becomes clear that the US economy is not so wonderful, there will be a rise in gold. The market will adapt to that idea and gold will start to rise. We could see that in the beginning of the second quarter “.
Data to see
There are a number of Fed speakers who will have to see next week, especially when analysts wonder if the Fed will address the sudden rise in yields.
“This week there will be a lot of Fed speakers, including Fed Chairman Powell, who will give the Fed a chance to curb the fall of the Treasury, at the very least, by starting to express some concern, something which has so far been noticeably lacking, ”ING FX strategists said.
Powell of the Fed is scheduled to speak on the U.S. economy Thursday at the Wall Street Journal Jobs summit. The event will be played live.
In terms of macro data, there will be the US ISM maker PMI on Monday, the non-farm employment change ADP and the non-farm ISM maker on Wednesday, unemployment claims and factory orders on Thursday, as well as the biggest event of the week: non-farm payrolls on Friday.
The market consensus calls for the February employment report to show a total of 165,000 jobs and for the unemployment rate to remain at 6.3%.
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