Gold prices fall $ 100 this week as economic outlook remains bleak, with bitcoin vying for safe haven status

(Kitco News) Gold fell about 4% on Friday, while investors sold the precious metal amid a rise in the US Treasury yield market.

February’s Comex gold futures were last traded at $ 1,839.40, down 3.88% the next day after breaking a key $ 1,850 an ounce level.

“There are two catalysts now that determine the sale of gold. Increasing bond yields and the troubled economy. This is causing liquidation and cash flight, ”said Peter Hug, Kitco Metals’ global trading director. “The yield on 10-year bonds rose over 1.1%, which is a significant move of yields to growth. This morning you also had employment data that was much more negative than expected, indicating that the US economy could have problems in the first quarter.

The market’s usual reaction to bad economic news is to switch to cash, Hug noted. “Advertisements run out of gold and go into cash, they go into the stock market or ten-year bond yields,” he said. “There was also a disappointing release of the vaccine. It will get worse before it gets better. ”

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

The contribution to the fall in gold was a technical wash, Walsh Trading co-director Sean Lusk told Kitco News. “I still had a lot of desires on the market. The blockages are tightening. The whole flow goes to the stock market. “

Rising Treasury yields are one of the main culprits behind lower gold prices, Lusk said. “Moreover, you had an increase in Treasury yields, which lowered your appetite for gold and we got a $ 100 laundering this week,” he said.

The Treasury’s higher yields offer a bid for the US dollar, which is responsible for selling gold, said Edward Moya, OANDA’s chief market analyst.

“Currently, there is a mixed outlook for the dollar. The bearish trade of the dollar has become overcrowded. So, investors are making some gold bets, because there is an anticipation of the return of the dollar “, said Moya.

Another factor is bitcoin competition, according to analysts. While gold prices lost $ 100 this week, Bitcoin rose more than $ 10,000, reaching a new all-time high of $ 41,000 on Friday.

“Bitcoin eliminates some attractions here. Nothing rational behind that, “Lusk said.

There is a big fundamental change going on for many investors, Moya said. “Expectations for gold to be a hedge against inflation have taken a back seat to cryptocurrencies, especially bitcoin,” he told Kitco News. “Right now, there is too much institutional interest that is diversifying away from gold.”

Moya sees the bitcoin bubble finally burst and gold rise in the idea that it is a big hedge of inflation.

Price levels

In the future, the big question is whether the $ 1,850 level will be maintained or not, analysts said.

Short-term declines of about $ 1,850 were bought in mid-December, which could happen here as well, Lusk said.

Hug said he was surprised to see gold go down so much on Friday. “I thought the $ 1,875 level would be maintained. I don’t expect gold to reach $ 1,850 today. And as long as this level is maintained, the gold market is still on an upward trend. “

If gold falls below $ 1,850, then $ 1,825 is possible, and if that doesn’t happen, $ 1,800 becomes support, Hug added.

Lusk is considering whether or not he owns $ 1,828. “If we hit $ 1,800, we’d be down about 5 percent from last year,” he said. “Closing below $ 1,828 brings you to $ 1,800. And $ 1,778 is the next level down. “

Moya added that he sees prices eventually stabilizing, but first he would like to maintain the $ 1,850 level. “Everyone will focus on the November lows when we see gold fall below $ 1,770. This will be the line in the sand. I would be surprised to see $ 1,800 violated, “he said.