(Kitco News) Gold is looking at its second loss month in 2021 as markets begin in February, with analysts warning of more adverse action with the valuable support of precious metals.
After the precious metal kicked off around $ 1,912 that year, it hit a new eight-month low of $ 1,714 on Friday – nearly $ 200 since the beginning of the year.
And if the gold price does not reach $ 1,725 or $ 1,700 next week, sales may not be over, analysts told Kitco News. At the time of writing, April Comex’s gold futures are trading at $ 1,729.10, which was 2.61% lower on the day.
“Gold has been going below recent lows and all weekly averages,” said LaSalle Futures Group senior strategist Charlie Nedoss. “We can test $ 1,700 next week.”
The main downside to gold was rising US treasury yields, which reached an annual high of 1.6% overnight, and a stronger US dollar.
Friday’s sales were also accelerated by technical sales after the metal fell below the 200-day moving average, said Peter Hug, global trade director at Kitco Metals.
“Right now, you have computer sales that are accelerating the move lower,” Hug said. “When we spoke last Friday, we were looking for an upward movement in gold. But when we reached $ 1,817 on Monday, the ten-year yield was about the 1.20% range, now it’s north of 1, 50%. “
This advance is important compared to the increase in yields in other countries, Hug pointed out. “This is significant in the sense that European rates and Japanese rates are still at zero. You have to compare yields yields between countries. That’s why you would expect the dollar to be stronger than where it is at present, based on yields. which is rising, “he explains.
Investors are also starting to leave stocks and turn to cash, which is bad for gold, Hug added. “In the context of stock markets, they are starting to take it on the chin with higher returns. Some people are leaving the stock market and moving in cash. That’s why you also have weak commodities,” he noted.
Next week, the $ 1,660 level is a possibility, said Bart Melek, head of TD Securities’ global strategy.
The markets are more optimistic, Melek noted, pointing out that it stimulates progress and is used faster than expected vaccination. The growing concern is now the stimulation of money that accelerates inflation and sharpens the yield curve.
Feed, yields and inflation
Until the Federal Reserve can successfully reassure the markets that it will not raise rates sooner than expected, and even indicate that it may consider looking at yield curves, anxiety will continue.
“As long as there is ambiguity, they can say they can keep inflation warm, but as long as the curve weakens, gold will have the concern that the Fed is not committed to its ultra-loose policies,” Melek said. . “That’s why gold can settle even lower before bouncing higher.”
Shares are starting to rise as yields rise as investors worry that Fed inflation is too low.
“If US Treasury Secretary Janet Yellen or Fed Chairman Jerome Powell comes forward and perhaps even refers to higher inflation expectations and says they will keep yields, gold will rise,” said Daniel Pavilonis, senior commodity broker from RJO Futures, said. “But it could take before yields rise to 2% before any response from the Fed.”
The Biden administration wants to continue to see the easy monetary policy, more stimulus and a strong stock market. “But the more stimulus they get, the more the yields go higher. They have to acknowledge the problem and continue with the stimulus,” Pavilonis noted.
In the long run, this is a very different story, as the US economy will have to deal with massive disruptions in terms of business closures, which require low interest rates.
“Ultimately, we need to see gold better, especially with the record debt and the stock market is a risk-off sentiment,” Melek said. “Once we settle down and it turns out that the US economy is not that great, there will be a rebound in gold. The market will reach the idea, and gold will start to rise. We could see it at the beginning of the second quarter. ‘
Data to look at
There are a number of Fed speakers to look at next week, especially as analysts question whether the Fed will address the sudden rise in yields.
“This week, a number of Fed speakers, including Fed Chairman Powell, will give the Fed the opportunity to slow down the Treasury’s decline by at least starting to express concern – which has been particularly lacking so far,” ING FX- strategists said. .
Powell of the Fed will speak at The Wall Street Journal Jobs Summit on Thursday about the US economy. The event is broadcast live.
In terms of macro data, there will be the US ISM manufacturing PMI on Monday, the ADP employment change and ISM non-manufacturing on Wednesday, jobless claims and factory orders on Thursday, as well as the biggest event of the week – non-farming payrolls on Friday.
Market consensus calls for the February employment report to show an addition of 165,000 jobs and for unemployment to remain at 6.3%.
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