(Kitco News) Gold was hit by a list of negative news this week, and the disappointing price action reflected this, with the precious metal down $ 45 from last week’s close. But the question in everyone’s mind is exactly how much more gold can fall before entering a new phase of composition?
The average level of $ 1,700 is an excellent buying opportunity, according to analysts. However, this does not mean that gold will not fall to even lower levels next week.
This week’s primary downward pressure came from rising US Treasury yields mixed with the stronger US dollar.
“If you look at gold in a basket of other metals, it’s only gold that has fallen. Silver goes well, as do platinum, palladium and rhodium. You get quite a significant buying interest in white and industrial metals, “said Kitco Metals global trading director Peter Hug.” Gold has been affected due to the significant 10-year yield increase. “
The 10-year Treasury yield started the week at 1.15% and rose to 1.33% by Friday. “This has taken some of the advantage of gold, because this increase in yields has produced strength in the US dollar,” Hug explained.
The news was also not very encouraging, 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 they hit an 8-month low of $ 1,760.40 on Thursday, triggering a small recovery. At the time of writing, April Comex gold futures were trading at $ 1,781.20, up 0.41% on that day.
Where to now?
Next week will be about the mutation of the US dollar, LaSalle Futures Group senior market strategist Charlie Nedoss told Kitco News. “The strength of the dollar could decline next week and we could see gold jumping off the bottom,” Nedoss said.
The fact that gold is currently trading above $ 1,778 gives the precious metal a chance to go higher next week, Hug pointed out. “This is based on technical data, assuming gold can stay above this level at the end of it. I’d rather be long on the market at $ 1,775 an ounce than short,” he said.
In addition, the underlying print appears to be accelerating, Hug noted, citing stronger PPI data. “I see these withdrawals as buying opportunities, not panic and liquidation opportunities,” he said.
In addition, we need to get $ 1,800, which is not a significant level of resistance, and then we need to get $ 1,825 before returning to the upward trend of $ 1,900, “Hug said.
But if the sale accelerates next week, the gold should be ready to test $ 1,750 and then $ 1,725. “I don’t think it’s likely, though,” he added.
If yields and stocks continue to rise, gold could look at much lower levels, warned Daniel Pavilonis, senior commodity broker for RJO Futures.
“If stocks become stronger, yields become stronger and gold reaches a level where, if we start closing below yesterday’s lows of $ 1,766, we can go much lower,” Pavilonis said. “For me, this is the line of sand. If we stay above it, we are bound at a distance.”
Gold could reach as high as $ 1,200 this year before resuming its uptrend, Pavilonis noted. “It will not go down directly to $ 1,200, but as real rates rise, this will eventually weigh gold before that momentum changes,” he said. “The $ 1,527 level would be the first real support.”
The downside is that gold risks losing another $ 100, Melek added, citing rising yields. “The yield curve continues to be absorbed without inflation going higher. Real rates are rising,” he said. “If we get real interest rates rising, it will be very difficult to see large flows of gold.”
Another obstacle for gold is its competition with Bitcoin. The cryptocurrency is being treated as digital gold by investors, Pavilonis added.
“If we put bitcoin in the same camp as metals, it has overtaken 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 also being perceived now, “he said. “But as bitcoin becomes more expensive, investors will wonder why not buy gold?”
Powell’s testimony
Next week, one of the key events will be the testimony of Federal Reserve Chairman Jerome Powell in front of the US Senate on Tuesday.
Markets will look for another confirmation that the Fed will ignore rising inflation and keep rates close to zero. Investors will also want to see what conditions the Fed would seek to introduce to control the yield curve.
“If the Fed starts raising rates because we’re starting to see inflation accelerate, this would be a key time for gold,” Pavilonis said. “Earlier, Powell said the Fed let inflation go. I think this would cause the future to go lower, and yields to go higher, could cause gold to fall.”
The words Powell will use will be critical, as his testimony is linked to the publication of the Federal Reserve’s half-yearly monetary policy report, ING economists said.
“It will be a difficult path for Powell to tread,” economists said. “It will be difficult to argue that the economy remains weak and that risks are at a disadvantage, but he will not want to sound overly optimistic either, as it could trigger more sharp movements in Treasury yields, which could hinder recovery and results in – wider market volatility. “
The focus will also be on the US stimulus package next week, which will likely see more US officials stressing how critical it is to pass it.
“Powell may reiterate that more fiscal stimulus is needed. Treasury Secretary Janet Yellen has already come out and indicated that it is essential for the stimulus package to come out. There is enough juice behind the concept to get an incentive package adopted.” , Hug said. “However, there are some questions that remain. We see some resistance not only from Republicans but also Democrats. I want to see if they have to reduce the payroll.”
Data to follow
The biggest day of macro data will be on Thursday, with US preliminary GDP in the fourth quarter, durable goods and jobless claims, all on record. Markets will also digest the PCE price index on Friday.
Other data will include the US home price index and CB consumer confidence on Tuesday, followed by new home sales on Wednesday.
“Next week’s US data should be a modest upward revision of GDP in 4Q20 and then on Friday, January, the number of personal incomes. It is expected to return after stimulus controls – but should be priced “We will also see the Fed’s preferred measure of inflation – the core PCE deflator – which is expected to be close to 1.4 / 1.5% annually in January,” ING FX strategists said.
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