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© Reuters.
Investing.com – The first week of March was devastating for gold prices, with the breakout of the important support level of $ 1,700 per ounce. The main question on everyone’s mind now is: Can gold continue to fall before it hits a low?
It has fallen more than $ 200 since the start of the year, and investors are hopeful that gold will bottom out to end the downtrend. The price of gold fell 2.8%.
And the main reason is: the high 10-year yields which have pushed higher, putting pressure on gold. The message from US Federal Reserve Chairman Jerome Powell was clear: The Fed will ignore any rise in inflation and there is no concern about rising Treasury yields.
Ed Moya of OANDA said, “Powell’s failure to stop the recent rise in Treasury yields has diminished the luster of gold. A short-term uptrend started for dollar index prices, which put pressure on gold. Meeting of the Monetary Policy Committee on March 17. “We will see a sharp blow in the bond market. And now it looks like the near-term pressures will leave gold vulnerable to greater risk.”
Markets expected the Fed chairman to announce a mechanism to stop the rise in Treasury yields, such as a change in the procurement program, or control of the yield curve – stabilizing some yields for some or all of the periods – but it did not happen. The Fed and Treasury have decided that the current rise in bond markets is a sign of economic recovery and rising inflation as expected.
Although stocks were subject to selloff and violent sessions of strong swings, for example, it closed Friday’s session with a gain of 570 points, in light of the return of high-tech stocks which suffered from sharp declines, due to the stronger report on the labor market. provided that.
Analysts expect the Fed to step in, but the intervention will only take place when 10-year Treasury yields rise above 1.75% or 2.00%.
The alarm bells will ring at the start of the 2.00% test and the stock market reaction will be sharp, according to TD Securities Chief Strategy Officer Bart Melick:
“It would upset the idea of a stable monetary policy environment.” “What the Fed is looking at are not just bond yields, but financial conditions. As soon as the central bank realizes the upper bound on Treasury yields, we will see an improvement in the price of gold.”
Gold at a critical juncture
In the short term, what are the expectations for the price of gold?
The next level for gold could be $ 1,685 an ounce. Peter Hoge of Kitco News expects: “Technically speaking, gold is trading at $ 1,700 an ounce, which is a psychological level, then the next level will be $ 1.725, then of $ 1,750. ”
However, the risk of a dip to $ 1,660 is strong and clear. The Fed did not say anything and did not say anything: the same tone and positive economic data will push gold even lower, and the areas of $ 1,600 an ounce are areas out of control.
If gold fails at $ 1,675 next week, we could see $ 1,610 an ounce, according to Sean Lusk of Walsh Trading. We need to stabilize above $ 1,675 an ounce over the next week.
If gold doesn’t hang on to its primary support, there might be a “flash crash” of $ 1,600 an ounce, then gold could hit a low, says Ed Moya .
Moya added, “I now expect to see the $ 1,600 an ounce level in a flash crash. But here the buyers are going to step in aggressively. This will attract the attention of institutional investors who will then enter on the market.”
Peter Hoge of Kitco remains bullish on the middle range of gold prices, with monetary easing.
The macroeconomic reasons remain encouraging for gold prices, with debt levels rising, currency values falling and governments continuing to print increasing amounts of cash and, of course, inflation.
Highlights of the week
Economic data continues to flow, attention turns to the US stimulus package and the progress of the Democratic Party on Friday night.
And improving conditions regarding Corona virus restrictions continue with Texas returning to reopen, which is a positive for the labor market and economic activity, and economic data is expected to be strong and a increasing increase. in Treasury bill yields.
The market is waiting for data from the United States – one of the measures of inflation – and it will be at 1.4% for February.
According to ING analysts: “Core inflation this week will turn higher, driven by higher gasoline prices and higher inflation from 1.4% to 1.6 % “.
The central banks of Canada and the European Union will announce their monetary policies on Wednesday and Thursday. No change is expected. Thursday the market awaits the jobless claims report, and Friday the PPI report.
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