Will the sale of gold accelerate next week? Look for a low price of gold

(Kitco News) Gold was hit with a string of negative news this week, and the disappointing price action reflected, with the precious metal down $ 45 from last week’s close. But the question on everyone’s mind is how much more can gold fall before entering a new bullish phase?

The average level of $ 1,700 is a great buying opportunity, analysts say. Still, that doesn’t mean gold won’t fall to even lower levels next week.

The main downward pressure this week came from the rise in yields on US Treasuries combined with the appreciation of the US dollar.

“If you look at gold in a basket with other metals, it’s only gold that’s gone down. Silver is doing well, and so are platinum, palladium, and rhodium. You get interest. fairly large purchase for white and industrial metals, “said Peter Hug, global sales manager for Kitco Metals.” Gold was affected due to the significant increase in 10-year yield. “

The yield on 10-year Treasuries started the week at 1.15% and rose to 1.33% on Friday. “It took some of the advantage over gold because this rise in yields produced strength in the US dollar,” Hug explained.

The headlines in the news weren’t too encouraging either, with BlackRock choosing silver over gold and DoubleLine CEO Jeffrey Gundlach choosing bitcoin over gold as the best “stimulus asset.”

Gold prices fell throughout the week until they hit an 8-month low of $ 1,760.40 on Thursday, triggering a slight rally. At the time of writing, April’s Comex gold futures were trading at $ 1,781.20, up 0.41% on the day.

Where to go next?

The next week will be devoted to the evolution of the US dollar, Charlie Nedoss, senior market strategist at LaSalle Futures Group, told Kitco News. “The strength of the dollar could wane next week, and we could see gold rebound from the bottom,” Nedoss said.

The fact that gold is currently trading above $ 1,778 gives the precious metal a chance to rise next week, Hug said. “This is based on technical aspects, assuming gold can stay above that level to close above. I’d rather go long in the market at $ 1,775 an ounce than short,” a- he declared.

Additionally, the underlying impression of inflation appears to be accelerating, Hug noted, citing stronger PPI data. “I see these setbacks as buying opportunities and not as panic and liquidation opportunities,” he said.

On the upside we need to move up to $ 1,800 which is not a significant resistance level and then move to $ 1,825 before returning to the uptrend of $ 1,900, ”Hug said.

But if the selling accelerates next week, gold should be ready to test $ 1,750 and then $ 1,725. “I don’t think it’s likely, however,” he added.

If yields and stocks continue to rise, gold could be at much lower levels, warned Daniel Pavilonis, senior commodities broker at RJO Futures.

“If stocks strengthen, yields strengthen and gold reaches a point where if we start to close below yesterday’s lows of $ 1,766, we can go much lower,” Pavilonis said. “To me it’s the line in the sand. If we stay on top, we’re in range.”

Gold may even hit $ 1,200 this year before resuming its uptrend, Pavilonis noted. “It won’t go straight down to $ 1,200, but as real rates rise, it will eventually weigh on gold before this dynamic change occurs,” he said. “The $ 1,527 level would be the first real support.”

On the downside, gold stands to lose another $ 100, Melek added, citing higher yields. “The yield curve continues to steepen without inflation rising. Real rates are rising,” he said. “If we push real interest rates up, it will be very difficult to see big flows into gold.”

Another obstacle for gold is its competition with bitcoin. With cryptocurrency being treated as digital gold by investors, Pavilonis added.

“If we put bitcoin on the same side as metals, it has outperformed gold and silver. That’s what people are looking for 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 now viewed as well, ”he said.“ But as bitcoin gets 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 before the US Senate on Tuesday.

Markets will look for further confirmation that the Fed will ignore rising inflation and keep rates close to zero. Investors will also want to see under what conditions the Fed would consider introducing yield curve control.

“If the Fed actually starts raising rates because we’re starting to see inflation accelerating, that would be a pivotal moment for gold,” Pavilonis said. “Earlier, Powell said the Fed is letting inflation go. I think that would cause futures contracts to fall and yields to rise, could lead to gold drop.”

The words Powell chooses to use will be critical because his testimony relates to the release of the Federal Reserve’s semi-annual monetary policy report, ING economists said.

“It will be a difficult road for Powell,” said economists. “It will be difficult to argue that the economy remains weak and risks are biased downward, but he also won’t want to sound too optimistic as this could trigger further sharp increases in Treasury yields, which could hamper the recovery and result in wider market volatility.

The focus will also be on next week’s US stimulus package, which will likely see more US officials stressing how critical it is to get it passed.

“Powell could reiterate that there is a need to strengthen fiscal stimulus. Treasury Secretary Janet Yellen has already stepped out and has indicated that it is essential that the stimulus package comes out. There is enough juice behind the concept. to push through a stimulus package, ”Hug mentioned. “However, there are a few questions that remain. We are seeing some resistance not only from Republicans but Democrats as well. I want to see if they need to water down the bill.”

Data to monitor

The big macroeconomic data day will take place on Thursday, with preliminary US fourth quarter GDP, durable goods and jobless claims on the agenda. The markets will also digest the PCE price index on Friday.

Other data will include the U.S. House Price Index and CB Consumer Confidence on Tuesday, followed by new home sales on Wednesday.

“US data for the coming week should be a modest upward revision to the 4Q20 GDP figure, then Friday’s personal income figures in January. This should jump on the back of the raise controls – but should be factored in now. We will also see the Fed’s preferred measure of inflation – the core PCE deflator – which should be contained around 1.4 / 1.5% over one year in January, ”ING strategists stressed. FX.