Affected by the increase in U.S. Treasury yields and the ample US dollar buying, the price of gold continued to be under pressure. On Tuesday (March 2) in the Asian market in early trading, spot gold fell below the two major barriers of $1720 and $1710 consecutively, and the intraday decline expanded to 1 %, quoted at $1707.57 per ounce. The U.S. dollar index remains strong. The index is currently above the 91 mark. A stronger U.S. dollar is negative for gold prices.Analysts said that the next important support level that the gold price may test next week is $1,700 per ounce. Once it falls below this level, the price of gold faces the risk of a further plunge.
Rabobank analysts explained that because deflationary transactions revolve around US fiscal policy and growth expectations, the U.S. dollar may be more resilient than generally expected by the market.
Chris Weston, head of Pepperstone’s research department, also responded to market expectations. He believes that although gold market sentiment has been extremely pessimistic, it is unlikely to reverse in the short term.Investors need to pay close attention to U.S. Treasury bond yields because the market seems to have a different view from the Fed in terms of the timing of possible future rate hikes. He said: “The market disagrees and believes that they will take real risks soon. The rising interest rate system and the absence of inflationary overruns are not an important foothold for gold.”
“There is a mismatch between the Fed’s interest rate guidance and market pricing, which is the cause of market turbulence. He said that the market is usually not dominating the central bank’s hub, but when they see it happening and refuse to listen to the narrative, it can be devastating. This means that this week will be the key, and Powell’s speech on March 5 local time will play a vital role. The Fed’s postponement of interest rate hike expectations may bring good news for gold’s bullishness.” Weiss Dayton added.
As for the incentives that can reverse the downward trend of gold, Weston believes that it is inflationary panic, deflationary shock and the increase in the Fed’s balance sheet.He pointed out that if inflation accelerates rapidly, investors will “flock to gold as a hedge.” If there is a deflationary shock, gold will benefit from the decline in the yields of nominal bonds and real bonds.If the Fed sends a signal that it is prepared to limit the United States’ long-term debt, the price of gold will rise as a result.
Although the long-term outlook for gold is still clear, Weston believes that these three variables cannot be met in a short period of time, including the debate on the Fed’s restrictions on long-term Treasury bonds. He said: “This will be a heated debate, and I think it is unlikely to be satisfied.”
The futures market can help determine how far the bulls need to fall before the bulls re-engage. By reviewing the latest CFTC report, financial managers have once again reduced their long-term gold exposure, and the continuous sharp rise in the yield on the curve exceeds inflation expectations, thereby making US dollar buying ample.
TD Securities analysts explained: “The increase in U.S. Treasury yields and the steepening of the curve are changing the relative financing cost and increasing the opportunity cost, which makes many investors reluctant to hold gold. With the U.S. 10-year Treasury bond As prices rise, the market may have more long liquidations and new shorts entering the market.”
Technical analysis
The price of gold tried to regain resistance, but failed to gain traction after breaking through the trend line support (near 1765 USD). The target support was near the June low of 1,670. Due to the fast stochastic indicator (MACD) generating a cross-sell signal, the short-term momentum has turned negative.
The well-known financial website Economies.com wrote an article that as the price of gold fell below US$1740.00 per ounce on Monday, this will push the price of gold to the next bearish target of US$1700.00 per ounce. Economies.com added that if the price of gold rebounds above $1740.00 per ounce and stays above this level, it will reactivate the bullish scenario, with the next target at $1765.00 per ounce.
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