(Kitco News) Gold faces its second month of losses in 2021 as markets close in February, and analysts are warning of further downside stocks with critical support levels from precious metals testing.

After starting the year around $ 1,912, the precious metal hit a new eight-month low at $ 1,714 on Friday, down nearly $ 200 since the start of the year.

And if the price of gold fails to contain $ 1,725 ​​or $ 1,700 next week, the sale may not be over, analysts told Kitco News. At the time of writing, April’s Comex gold futures were trading at $ 1,729.10, down 2.61% on the day.

“Gold has broken recent lows and all weekly averages,” said Charlie Nedoss, senior market strategist at LaSalle Futures Group. “We could test $ 1,700 next week.”

The main triggers for gold were rising 10-year US Treasury yields, which hit a one-year high of 1.6% overnight, and a stronger US dollar.

Friday’s sell-off was also accelerated by technical sell-off after the metal fell below the 200-day moving average, said Kitco Metals global trading director Peter Hug.

“Right now, the sale of computers is accelerating the downward movement,” Hug said. “When we spoke last Friday we were looking for an upward movement in gold. But when we got to $ 1,817 on Monday the 10 year yield was around 1.20%, now it’s north. by 1.50%. “

This breakthrough is significant in comparison to rising yields in other countries, Hug said. “This is significant in the sense that European rates and Japanese rates are always zero. You have to compare the yields between countries. This is why you expect the dollar to be stronger than where it is. currently based on higher yields. he explained.

Investors are also starting to exit stocks and turn to cash, which is bad for gold, Hug added. “In the context of the stock markets, they start to gain the upper hand with higher returns. Some people leave the stock market and turn to cash. That’s why you also have weakness in commodities,” he said. he noted.

Next week, the $ 1,660 level is very likely, said Bart Melek, head of global strategy at TD Securities.

Markets are more optimistic, Melek noted, pointing to stimulus progress and faster-than-expected vaccine deployment. The growing concern now is that stimulus money will accelerate inflation and steepen the slope of the yield curve.

Fed, yields and inflation

Until the Federal Reserve succeeds in reassuring the markets that it will not hike rates sooner than expected and perhaps even signal that it may consider controlling the yield curve, the anxiety will persist.

“As long as there is that ambiguity they can say they will allow inflation to soar, but as long as the curve steepens gold will fear that the Fed is not engaged in its ultra-policy. loose, ”Melek said. . “This is why gold may stabilize even lower before rebounding higher.”

Stocks begin to fall each time yields rise, with investors worried the Fed is underestimating inflation.

“If US Treasury Secretary Janet Yellen or Fed Chairman Jerome Powell come out and maybe even hint at higher inflation expectations and say they’re going to keep yields low, gold is going to take off.” said Daniel Pavilonis, senior commodities broker at RJO Futures. “But it may take yields to reach 2% before any response from the Fed.”

The Biden administration wants to continue to see easy monetary policy, more stimulus, and a strong stock market. “But the more they come out of the stimulus, the more the yields increase. They have to admit the problem and continue with the stimulus,” Pavilonis noted.

Longer term, it’s a whole different story as the US economy will face a massive dislocation in terms of business closures, requiring low interest rates.

“Ultimately, we should see gold better, especially with the record debt and equity market a sense of absence of risk,” Melek said. “Once we get settled and it becomes evident that the US economy is not that great, there will be a rebound in gold. The market will move on to this idea and gold will start to rise. We could see it early in the second quarter. “

Data to monitor

There are a number of Fed speakers to watch next week, especially as analysts wonder if the Fed will respond to the sudden surge in yields.

“The week will see a whole slew of Fed speakers, including Fed Chairman Powell, offer the Fed an opportunity to slow the decline of the Treasury by at least starting to express some concern – which has been lacking so far, ”ING FX strategists said. .

The Fed’s Powell is scheduled to speak on the US economy Thursday at the Wall Street Journal Jobs Summit. The event will be broadcast live.

In terms of macro data, there will be the US ISM manufacturing PMI on Monday, the ADP non-farm job change and the non-manufacturing ISM on Wednesday, jobless claims and factory orders on Thursday, as well as the biggest event. of the week – the non-farm payroll on Friday.

Market consensus calls for the February jobs report to show an addition of 165,000 jobs and for the unemployment rate to remain at 6.3%.

(Kitco News) Gold faces its second month of losses in 2021 as markets close in February, and analysts warn of further downside stocks with critical support levels from precious metals testing.

After starting the year around $ 1,912, the precious metal hit a new eight-month low at $ 1,714 on Friday, down nearly $ 200 since the start of the year.

And if the price of gold fails to contain $ 1,725 ​​or $ 1,700 next week, the sale may not be over, analysts told Kitco News. At the time of writing, April’s Comex gold futures were trading at $ 1,729.10, down 2.61% on the day.

“Gold has broken recent lows and all weekly averages,” said Charlie Nedoss, senior market strategist at LaSalle Futures Group. “We could test $ 1,700 next week.”

The main downward triggers for gold were rising 10-year US Treasury yields, which hit a one-year high of 1.6% overnight, and a stronger US dollar. .

Friday’s trade sell was also accelerated by technical sell after the metal fell below the 200-day moving average, Kitco Metals global trading director Peter Hug said.

“Right now, the sale of computers is accelerating the downward movement,” Hug said. “When we spoke last Friday we were looking for an upward movement in gold. But when we got to $ 1,817 on Monday the 10 year yield was around 1.20%, now it’s north. by 1.50%. “

This breakthrough is significant in comparison to rising yields in other countries, Hug said. “This is significant in the sense that European rates and Japanese rates are always zero. You have to compare the yields between countries. This is why you expect the dollar to be stronger than where it is. currently based on rising yields. he explained.

Investors are also starting to move out of stocks and turn to cash, which is bad for gold, Hug added. “In the context of the stock markets, they start to gain the upper hand with higher returns. Some people leave the stock market and turn to cash. That’s why you also have weakness in commodities,” he said. he noted.

Next week, the $ 1,660 level is very likely, said Bart Melek, head of global strategy at TD Securities.

Markets are more optimistic, Melek noted, pointing to stimulus progress and faster-than-expected vaccine deployment. The growing concern now is that stimulus money will accelerate inflation and steepen the slope of the yield curve.

Fed, yields and inflation

Until the Federal Reserve succeeds in reassuring markets that it will not hike rates sooner than expected and perhaps even signal that it may consider controlling the yield curve, the anxiety will persist.

“As long as there is this ambiguity, they can say they will allow inflation to soar, but as long as the curve steepens, gold will fear that the Fed is not engaged in its ultra-policy. loose, ”Melek said. . “This is why gold may stabilize even lower before rebounding higher.”

Stocks begin to fall each time yields rise, with investors worried the Fed is underestimating inflation.

“If US Treasury Secretary Janet Yellen or Fed Chairman Jerome Powell come out and maybe even hint at higher inflation expectations and say they’re going to keep yields low, gold is going to take off.” said Daniel Pavilonis, senior commodities broker at RJO Futures. “But it may take yields back to 2% before any response from the Fed.”

The Biden administration wants to continue to see easy monetary policy, more stimulus, and a strong stock market. “But the more they come out of the stimulus, the more the yields increase. They have to admit the problem and continue with the stimulus,” Pavilonis noted.

Longer term, it’s a whole different story as the US economy will face a massive dislocation in terms of business closures, requiring low interest rates.

“Ultimately, we should see gold better, especially with the record debt and equity market is a sense of absence of risk,” said Melek. “Once we get settled and it becomes apparent that the US economy is not that great, there will be a rebound in gold. The market will move on to this idea and gold will start to rise. We could see it early in the second quarter. “

Data to monitor

There are a number of Fed speakers to watch next week, especially as analysts wonder if the Fed will respond to the sudden surge in yields.

“The week will see a host of Fed speakers, including Fed Chairman Powell, offer the Fed an opportunity to slow the decline of the Treasury by at least starting to express some concern – which has been lacking so far, ”ING FX strategists said. .

Fed’s Powell is scheduled to speak on the US economy Thursday at the Wall Street Journal Jobs Summit. The event will be broadcast live.

In terms of macro data, there will be the US ISM manufacturing PMI on Monday, the ADP non-farm job change and the non-manufacturing ISM on Wednesday, jobless claims and factory orders on Thursday, as well as the biggest event. of the week – the non-farm payroll on Friday.

Market consensus calls for the February jobs report to show an addition of 165,000 jobs and for the unemployment rate to remain at 6.3%.