Gold price drops $ 100 this week as economic prospects remain fierce, with bitcoin competing for safe haven status

(Kitco News) Gold tumbled about 4% on Friday when investors sold the precious metal amid a rise in the US yield market.

Gold futures at Comex last traded at $ 1,839.40 in February, down 3.88% on the day after breaking a significant level of $ 1,850 per ounce.

‘There are currently two catalysts selling gold. Rise in bond yields and the economy struggling. It causes liquidation and cash flight, ”said Peter Hug, global trading director at Kitco Metals. “The 10-year bond yield has climbed to above 1.1%, which is a significant shift in yields upside down. This morning, you also have far more negative employment data than expected, indicating that the U.S. economy may be in trouble in the first quarter. ”

The usual reaction of the market to bad economic news is a move towards cash, Hug noted. “Commercial businesses are disappearing gold and getting cash, and that’s being done in the stock market, or ten-year yields,” he said. ‘There was also a disappointing effect of vaccines. It will get worse before it gets better. ”

Hug added that it was starting to look similar to what happened in March when gold was sold amid the first round of COVID-19 exclusions.

Sean Lusk, co-director of Walsh Trading, contributed to the decline in gold through a technical diversion, Kitco News told. ‘We still had a lot of desires in the market. Exclusions are closing. All the flow goes to the stock market. ”

The rise in treasury yields is one of the main culprits behind the lower gold prices, Lusk noted. “More so, you had an increase in treasury yields, which reduced your appetite for gold, and we got a $ 100 outflow this week,” he said.

The higher treasury yields offer a bit of a bid for the U.S. dollar, which is responsible for selling gold, said Edward Moya, senior market analyst at OANDA.

“Right now there is a mixed outlook for the dollar. The dollar’s clumsy trade became crowded. “Investors are therefore making some golden bets because a dollar rebound is expected,” Moya said.

According to analysts, another factor is the competition with bitcoin. While gold prices lost $ 100 this week, bitcoin rose more than $ 10,000, hitting a new high of more than $ 41,000 on Friday.

‘Bitcoin is taking up a profession here. There is nothing rational behind it, “said Lusk.

There is a big fundamental shift for many investors, Moya said. “The expectation that gold is an inflation hedge has taken the seat of cryptocurrencies, especially bitcoin,” he told Kitco News. “Right now, there is too much institutional interest that differs from gold.”

Moya sees the bitcoin’s bubble finally burst and gold rises on the idea that it’s a big inflation hedge.

Price levels

The big question ahead is whether the $ 1,850 level holds, analysts said.

The short-term declines of about $ 1,850 were bought in mid-December, which could also happen here, Lusk noted.

Hug said he was surprised to see gold move down so much on Friday. “I thought $ 1,875 would hold level. I do not expect gold to break $ 1,850 today. And as long as that level holds, the gold market is still in an upward trend. ”

If gold falls below $ 1,850, $ 1,825 is possible, and if it does not, $ 1,800 becomes support, Hug adds.

Lusk is looking into whether $ 1,828 is in possession. “If we earn $ 1,800, we’ll be about 5% lower than this year,” he said. ‘Nearly less than $ 1,828 takes you down to $ 1,800. And $ 1,778 is the next level lower. ”

Moya added that he sees prices eventually stabilizing, but first he wants the $ 1,850 level to hold. ‘Everyone will focus on the November lows when we see gold rise just below $ 1,770. This will be the line in the sand. “I would be surprised to see a $ 1,800 violation,” he said.