(Kitco News) Gold was hit by negative news this week, and the disappointing price action reflected that, with the precious metal being $ 45 lower than last week. But the question everyone is thinking is how much gold can fall further before it starts a new bullish phase?
According to analysts, the mid-range of $ 1,700 is an excellent buying opportunity. This does not mean that gold will not fall to even lower levels next week.
This week’s primary downward pressure comes from rising US treasury yields, mixed with the stronger US dollar.
“If you look at gold in a basket of other metals, it’s just gold that has gone down. Silver is doing well, as are platinum, palladium and rhodium. You’re getting a pretty significant interest in buying white and industrial metals, said Peter Hug, the global commercial director of Kitco Metals. “Gold has been affected due to the significant increase in yield for ten years.”
The 10-year treasury’s yield started at 1.15% this week and rose to 1.33% by Friday. “It took gold off the lead because the rise in yields made the U.S. dollar strong,” Hug explained.
The headlines were not too encouraging either, with BlackRock choosing silver over gold and DoubleLine CEO Jeffrey Gundlach choosing bitcoin over gold as a better ‘stimulus asset’.
Gold prices fell all week until reaching a low of $ 8,1760.40 in 8 months on Thursday, causing a slight recovery. At the time of writing, the April Comex gold contracts were trading at $ 1,781.20, up 0.41% on the day.
Where next?
Next week, everything the US dollar is moving to, Charlie Nedoss, senior market strategist at LaSalle Futures Group, told Kitco News. “The dollar strength may decline next week, and we may see gold bounce off the bottom,” Nedoss said.
The fact that gold is currently trading at more than $ 1,778 gives the precious metal a chance to be higher next week, Hug pointed out. “It’s based on techniques, assuming gold can stay above the level above. I would rather have the market at $ 1,775 per ounce than short,” he said.
Plus, the underlying pressure for inflation appears to be accelerating, Hug noted, citing stronger PPI data. “I see these refunds as buying opportunities, not as opportunities to panic,” he said.
“On the upside, we need to reach $ 1,800, which is not a significant level of resistance, and then go through $ 1,825 before returning to the upward trend of $ 1,900,” Hug said.
But if sales accelerate next week, gold should be ready to test $ 1,750 and then $ 1,725. “However, I do not think it is likely,” he added.
As yields and equities continue to rise, gold could see much lower levels, Daniel Pavilonis, senior commodity broker at RJO Futures, warned.
“As stocks get stronger, yields get stronger and gold gets to a level where we can go lower if we fall below yesterday’s low of $ 1,766,” Pavilonis said. “For me, it’s the line in the sand. If we stay up there, we’s series bound.”
Gold could even end up at $ 1,200 this year before resuming its strong trend again, Pavilonis noted. “It will not drop directly to $ 1,200, but as the real rate goes up, it will eventually weigh gold before this dynamic shift takes place,” he said. “The $ 1,527 level would be the first real support.”
The downside is that gold is in danger of losing another $ 100, Melek adds, citing rising returns. “The yield curve is still rising without inflation moving higher. Real rates are moving up,” he said. “If we move real interest rates higher, it’s going to be very difficult to see big gold flows.”
Another obstacle for gold is its competition with bitcoin. The investor treated by investors as digital gold, Pavilonis added.
“If we put bitcoin in the same camp as metals, it fared better than gold and silver. That’s what people are looking at now. Gold has traditionally been an alternative – a hedge against inflation if you want to get out of the system. That’s how bitcoin is now also being observed, ‘he said. “But as bitcoin becomes more expensive, investors will wonder why they are not buying gold.”
Powell’s testimony
Next week, Jerome Powell, chairman of the Federal Reserve, will be one of the most important events before the US Senate on Tuesday.
Markets will be looking for another confirmation that the Fed will ignore rising inflation and keep rates close to zero. Investors will also want to see under what circumstances the Fed wants to look at introducing yield curves.
“If the Fed is really starting to raise rates because we are starting to accelerate inflation, this is an important moment for gold,” Pavilonis said. “Earlier, Powell said the Fed was letting inflation go. I think it will cause the futures contract to move lower and the returns to move higher, and that it can bring down gold. ‘
The words Powell will choose are critical because his testimony is linked to the publication of the Federal Reserve’s semi-annual monetary policy report, ING economists said.
“It will be a difficult road to walk,” the economists said. ‘It will be difficult to argue that the economy remains weak and that the risks are shifting downwards, but he also does not want to sound too optimistic, as this could cause further sharp movements in treasury yields, which could hamper recovery and consequence. . in broader market volatility. ‘
The focus will also be on the US stimulus package next week, which is likely to make more US officials stress how critical it is to succeed.
“Powell can reiterate that more fiscal stimulus is needed. Finance Minister Janet Yellen has already come out and indicated that it is critical that the stimulus package comes out. There is enough juice behind the concept for a stimulus package to succeed,” said Hug. said. “However, there are some questions that remain. We see resistance not only from the Republicans but also from the Democrats. I want to see if they should drain the bill.”
Data to look at
The big macro data day will be Thursday, with fourth-quarter U.S. GDP, durable goods and jobless claims. Markets also consumed the PCE price index on Friday.
Other data will include the U.S. house price index and CB consumer confidence on Tuesday, followed by new home sales on Wednesday.
“US data in the coming week should be a modest upward revision of the 4Q20 GDP figure and then on Friday, January’s personal income. It is expected to jump on the background of stimulus tests, but it should be priced now. We “We also see the Fed’s preferred benchmark for inflation – the core PCE deflator – expected to be close to 1.4 / 1.5% annually in January,” ING FX strategists pointed out.
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