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Gold fell, near two-week low against the strong dollar, and higher yields
Written by Gina Lee
Investing.com – Gold prices fell Tuesday morning in Asia, falling to their lowest level in more than two weeks. Investors have turned away from safe havens as the speed of vaccine rollouts and the prospect of further stimulus in the United States have boosted the dollar and Treasury yields higher.
It was down 0.42% to $ 1,707.35 by 12:40 p.m. ET (4:40 GMT) after hitting $ 1,704, its lowest level since March 12, earlier in the session. The gold contract was also carried over to the June 21 contract on March 29.
“The main factor weighing on gold prices is the continued rise in long-term bond yields in the United States,” Margaret Yang, strategist at DailyFX, told Reuters, adding that prices would continue to fall even with the role of the yellow metal as a means of protection against inflation.
This drop in gold prices “can be attributed to hopes of an economic boom because this infrastructure plan will not only inject liquidity into the market, but will actually inject money into the real economy. . Thus, the economic outlook is brighter than before. “
Long-term yields on Treasuries have risen amid speculation that US President Joe Biden’s infrastructure initiative, which will be announced on Wednesday, could boost US economic growth.
The rally in the dollar, which hit a one-year high against the yen on Tuesday, also put pressure on the yellow metal. Investors continued to watch for any fallout from the collapse of hedge fund Archegos Capital.
Edward Moya, chief market analyst at Udana, warned in a note: “The strengthening of gold starts to fall and if the downward pressure causes prices to drop below the $ 1,700 level, it can happen very. quickly… Massive support throughout the pandemic is at the $ 1,670 level. And if that doesn’t hold up, it won’t show much support until the $ 1,600 level. “
As for other precious metals, it fell 0.3% and platinum 0.3%. However, it gained 0.1% after falling 5.5% in the previous session.
Wells Fargo estimates that signs of a sharp rise have started to form in gold, with the price falling below $ 1,700 an ounce.
The impetus for the higher price is reduced supply growth. Gold could reach $ 2,200 an ounce this year, according to Wells Fargo analyst John LaForge.
“The supply of gold has gone from a surplus to a deficit,” Laforge said. “At similar times in the past, these declines caused the price of gold to rise sharply.”
Due to the oversupply, prices suffered before 2018.
He wrote: “The gold supply was in excess in 2011 due to the rise in gold prices from $ 250 to $ 1,900 per ounce, and during the period 2001 to 2011.”
But that changed over the next three years, with gold going from oversupply to a deficit, and Wells Fargo turning positive.
LaForge said: “At times like these in the past it has risen sharply, and we see that gold will be the new star of the bullish cycle in the commodities market, and it will be the seventh since 1800. ” “Gold prices have risen over 40% since 2018, and we see more profits going forward.”
Besides supplies, gold is still influenced by trend determinants such as: real interest rate, money printing and the weakness of the United States, according to Wells Fargo.
“These trends remain intact, and we remain bullish on gold, and the 2021 target will be between 2,100 and 2,200,” LaForge said.
But right now, gold is trading below the $ 1,700 an ounce level again and heading down the descending channel in light of improving economic data and Corona virus vaccines. which increase their effectiveness according to research.
The next support levels are at $ 1,672.8 an ounce.
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