(Kitco News) Precious metals investors were taken for a walk on Friday, when gold and silver fell by 4% and almost 10%, respectively.
Increases in US Treasury yields and the US dollar were the main reasons behind this massive sale, analysts told Kitco News on Friday.
Gold recorded a daily loss of $ 80 at one point, the last transactions with gold earnings since February Comex at $ 1,836.60, down 4.02%. At the time of writing, the 10-year Treasury yield rose above 1.1%.
Despite the massive daily losses, the smaller move may not be over yet, according to analysts.
“Right now, for the most part, rising Treasury yields have made an offer for the dollar, which is responsible for selling gold,” said Edward Moya, OANDA’s chief market analyst. “There is too much institutional interest in diversifying into gold. There is a great fear that ETF holdings will decline as President-elect Joe Biden is expected to be more successful in crushing the COVID-19 pandemic. Gold is seeing intense technical selling.” .
The gold space will have $ 100 in the next two days, Moya added, telling investors to pay attention to the US dollar.
The bear trade on the green currency has become overcrowded as the dollar’s downward position reaches a ten-year high at the end of 2020, he said.
“There was a consensus on Wall Street that the dollar would expand its weakness, with the Federal Reserve being the last central bank to raise rates. But what happened was that the dollar’s rising trade was overcrowded. We see the return of the dollar, and some bets on gold are relaxing 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 a stricter blockade and a record number of coronavirus deaths.
“There are two catalysts right now that are driving the sale of gold. Rising bond yields and the troubled economy. This is causing liquidation and the flight to cash,” said Peter Hug, global sales director at Kitco Metals. “Friday’s employment data also indicates that the US economy could have problems in the first quarter.”
The usual reaction of the market to bad economic news is to switch to cash, Hug explained. “Money escapes gold and goes into cash, the stock market or ten-year bond yields,” he said. “There has also been a disappointing release of the vaccine. It will get worse before it gets better.”
Crypto competition
More and more analysts agree that bitcoin is stealing attention from gold, and the regular flows that would have entered the yellow metal due to its safe haven attraction are now entering bitcoin.
For comparison, gold lost $ 125 this week, while Bitcoin rose more than $ 10,000, reaching a new all-time high of $ 41,000 on Friday.
“There is a big fundamental change for many investors,” Moya said. Trade in secure gold ports has taken a back seat to cryptocurrencies, especially bitcoin. When you look at the positioning of gold, you see a diversification away from gold in crypto. “
Bitcoin sees new investors in the flight to safety argument, said Walsh Trading co-director Sean Lusk. “It hurts the attraction of gold by the fact that bitcoin is getting attention,” he said.
However, even if the crypto attraction will weigh gold in the short term, the bitcoin bubble will eventually explode, Moya said. “It is possible that hedging against inflation will support much higher gold prices,” he added.
Many analysts agree with this assessment, as they believe that the whole case of this year’s gold climb is still intact.
“Looking ahead, the Blue Senate should continue to fuel an additional USD disadvantage, further supporting commodities and especially precious metals. Reflective backwinds and massive growth in the money supply should continue to translate into strong price actions in the yellow metal, “said strategists.
What happens when the price of gold falls below $ 1,800?
The big sand line for next week will be the $ 1,770 level – which was the lowest since November, Moya said.
“I’d like to see gold hold at about $ 1,850. Everyone will focus on the November lows. I’ve seen prices go just under $ 1,770. I’d be surprised to see that $ 1,800 has been violated.” he said. “You will see that prices will eventually stabilize.”
Lusk added that $ 1,850 was bought in December, which could be the case now.
Much of Friday’s sales were technical, he said. $ 1,800-20 should be maintained, as was the minimum since mid-December. A drop to $ 1,800 would be about 5 percent lower for the year, “Lusk said.
If we close below $ 1,828, gold will retreat to $ 1,800, which would open the door to $ 1,778.
LaSalle Futures Group senior market strategist Charlie Nedoss warned that a move below $ 1,820 would trigger “stops that are there and $ 1,800 would follow.”
Data to follow
Key data sets to look at 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 slight result is expected in December, especially given the order to stay at home in California, the most populous state in the United States. Google’s mobility data suggests that human trafficking in retail and recreation areas was moderate and less moving during the holiday season, we suspect there was even less buying of gifts, “said ING’s chief international economist , James Knightley.
Jerome Powell, president of the Federal Reserve, is scheduled to speak next Thursday at the virtual event hosted by Princeton University’s Bendheim Center for Finance.
“We will talk a lot about the Fed next week. And now, when the 10-year Treasury yields are at 1.10, this could alarm the Fed. They want the curve to get worse, but they don’t want it to happen all at once. The Fed could become stronger when it comes to controlling the curve. They have a growing deficit, they can’t make rates rise too much. It will lead to problems, “Moya said.
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