(Kitco News) Precious metal investors were taken on Friday when gold and silver plunged 4% and nearly 10% respectively.
Analysts told Kitco News on Friday that the increase in U.S. treasury yields and the U.S. dollar were the main reasons for this big sell-off.
Gold at one point experienced a daily loss of $ 80, while Comex gold futures last traded at $ 1,836.60 in February, up 4.02%. At the time of writing, ten-year treasury yields have climbed above 1.1%.
Despite huge daily losses, analysts say analysts may not be over yet.
“Right now, the Treasury’s rising yields are mostly bidding for the dollar responsible for selling gold,” said Edward Moya, senior market analyst at OANDA. “There is too much institutional interest deviating from gold. There is a great fear that ETF holdings will decline as President-elect Joe Biden is expected to be more successful in the collapse of the COVID-19 pandemic. Gold see intense technical sales. “
The gold space will amount to $ 100 movements in the next few days, Moya added, urging investors to pay attention to the US dollar.
The business peasant trade became crowded as the dollar’s clumsy positioning reached a decade-high level by the end of 2020, he said.
“There was consensus on Wall Street that the dollar would increase its weakness with the fact that the Federal Reserve is the last central bank to raise rates. But what happened was that the dollar’s clumsy trade was overcrowded. We see that the dollars, and some gold bets are being settled in the process, ”Moya said.
The economic outlook also remains very uncertain, with the US reporting a loss of 140,000 jobs in December amid tighter shutdowns and a record number of coronavirus deaths.
“There are currently two catalysts selling gold. Rising bond yields and the economy in trouble. This is causing liquidation and cash flow,” said Peter Hug, global trading director at Kitco Metals. “Friday’s employment data also indicates that the U.S. economy may be in trouble in the first quarter.”
The usual reaction to the bad economic news is a cash move, Hug explained. “Money goes out of gold and goes into cash, to the stock market or bond yields of ten years,” he said. “There is also a disappointing effect of vaccines. It will get worse before it gets better.”
Crypto competition
More and more analysts agree that bitcoin is stealing the attention of gold, and that the regular inflows that would have gone into the yellow metal due to the safe haven are now going to bitcoin.
By comparison, gold lost $ 125 this week, while bitcoin rose more than $ 10,000 and reached a new high of more than $ 41,000 on Friday.
“There’s a big fundamental shift for a lot of investors,” Moya said. Gold’s secure port trade has taken the cryptos, especially bitcoin, to the back seat. If you look at gold’s positioning, you see a diversification of gold into cryptos. ‘
Sean Lusk, co-director of Walsh Trading, says Bitcoin sees new investors fleeing security argument. “It makes the attraction of gold’s damage with bitcoin take away the attention,” he said.
Although the appeal of cryptocurrencies in the short term will weigh gold, the bitcoin bubble will eventually burst, Moya said. “Inflation hedging is likely to support much stronger gold prices,” he added.
Many analysts agree with this rating because they still view the gold’s bullish case for this year intact.
“If one looks further at the horizon, the Blue Senate must continue to incite a further disadvantage in the dollar, and further support commodities and especially precious metals. Reflational backwinds and a massive growth in money supply must still translate into strong price action in the yellow metal, “said TD Securities. strategists said.
What happens if the gold price falls below $ 1,800?
The big line in the sand for next week will be the $ 1,770 level – which was the lowest in November, Moya said.
“I would like to see gold reach around $ 1,850. Everyone will focus on the November lows. We have seen prices fall just below $ 1,770. I would be surprised to see a $ 1,800 breach.” he said. “You’re going to see prices eventually stabilize.”
Lusk added that declines up to $ 1,850 were bought in December, which could happen now as well.
Many of the sales on Friday were technical, he noted. The $ 1,800-20 should apply because it was low in mid-December. A move to $ 1,800 will drop about 5% for the year, ‘Lusk said.
If we close less than $ 1,828, gold will retreat to $ 1,800, which will open the door to $ 1,778.
The senior market strategist at LaSalle Futures Group, Charlie Nedoss, warned that a move below $ 1,820 would ‘stop’ down there and cause a $ 1,800 next. ‘
Data to look at
The most important data sets to be watched next week include US inflation figures on Wednesday, jobless claims on Thursday, and PPI, along with retail sales on Friday.
“Retail sales fell sharply in November, and another soft result is expected in December, especially given the home stay in California, the United States’ most populous state. Google mobility data indicates that traffic in retail and recreational areas is moderate, and with less movement around the holiday season, we suspect there was also less gift buying, “said James Knightley, chief economist at ING.
Federal Reserve Chairman Jerome Powell will also speak next Thursday during the virtual event hosted by the Princeton University Bendheim Center for Finance.
“Next week we’ll talk a lot about the Fed. And now that the 10-year Treasury yields are at 1.10, it could upset the Fed. They want the curve to tighten, but they do not want it to happen in one. “The Fed can become more vocal when it comes to yield curve control. They have a balloon shortage, they can not raise rates too high. That will cause problems,” Moya said.
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