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Gold off seven-month low as dollar weakness outweighs firmer yields

 

·         Gold prices gained on Monday after hitting a more than seven-month low in the previous session, as support from a weaker dollar eclipsed pressure from firmer Treasury yields.

 

·         Spot gold rose 0.5% to $1,791.50 per ounce by 0733 GMT, having touched its lowest since July 2 at $1,759.29 on Friday. U.S. gold futures gained 0.6% to $1,787.70.

 

·         "The dollar coming off is helping to negate the rise in yields," Howie Lee, an economist at OCBC Bank said, adding "gold is in a weird place... while there's clearly a need for inflation hedging, firming risk sentiment has pressured gold".

 

·         The dollar was sold to multi-year lows against sterling and rival currencies on Monday, but benchmark U.S. Treasury yields hit a near one-year high, increasing the opportunity cost of holding non-yielding bullion.

 

·         Apart from the $1.9 trillion U.S. COVID-19 aid that is expected to pass by the end of the week, investors await Federal Reserve Chairman Jerome Powell's testimony on the Semiannual Monetary Report to Congress starting Tuesday.

 

·         "The rise in yields will be the major headwind for gold for now, but if Powell hints at any dovishness or implies that current yields are too high for sustained economic recovery... then we can see gold embark on a rally again," Lee said.

 

·         Meanwhile, Bitcoin hit a record high on Sunday.

 

·         "The recovery by gold remains unconvincing and its technical picture remains grim. For now, the crypto market appears to have temporarily taken over the mantle of inflation hedge," OANDA senior market analyst Jeffrey Halley said in a note.

 

·         A lower dollar can help stabilize gold prices at this stage but not turn the overall direction, Halley added.

 

·         Treasury yields surge on promising vaccine news, gold and oil recover

It’s one of these days where investors don’t know what to do with the good news. Asian markets kicked off the week on a flat-to-negative note despite the most-expected news that the immunization with Pfizer and BioNTech’s Covid vaccines do curtail the transmission of the coronavirus. In other words, it means that the Covid vaccines will actually be the game changer in 2021, allowing the economies to reopen for good, hopefully, and companies to get back to their pre-Covid pace of business.

 

But it also means that the huge monetary and fiscal stimulus will be harder to justify, and companies will need to fly with their own wings. The major worry is that the rising inflation worries could accelerate the end of the stimulus game.

 

As such, investors continue dumping their sovereign bond holdings, but not yet their equities. The US 10-year yield jumped to near 1.38%, as the Australian 10-year yield surpassed 1.60%, encouraging the Reserve Bank of Australia (RBA) to resume its bond purchases to fight back a sizeable positive shift of its yield curve as a result of the global reflation trade. 

 

And that’s the magic of the actual co-stimulus setting. The governments – of developed countries of course - issue bonds, and their own central banks buy them. If yields take off, they just buy more. 

 

Reflation trade or not, Bitcoin continues its journey to the moon. The price of a coin reached $58K over the weekend. Because we don’t have enough data to predict how Bitcoin would react to inflation, we can’t predict how the reflation trade would affect the cryptocurrency. Recent history shows that Bitcoin has performed well during the 2020 post-Covid-plunge risk rally. So, if it reacts well during an eventual market rout as well, then investors found a real gem.

 

Back to traditional assets, gold rebounded from $1760 per oz as the rising inflation worries overweighed the rocketing treasury yields, hence the opportunity cost of holding gold. There is a rising conviction that gold could soon be needed as a hedge against an eventual overshoot in inflation and it’s worth paying a higher price to have a solid insurance in hand. 

 

The US dollar is soft across the board and the soft dollar benefits to Cable which cleared the 1.40 resistance for the first time since April 2018. The pound continues surfing on a wave of post-Brexit optimism and has potential to consolidate and extend gains above this level. 

 

But the strong pound will likely be an additional weight on British equities’ shoulders at the start of the week. The FTSE 100 could slip below the 6600p mark at the open, despite firm energy and commodity prices. 

 

Oil fluctuates near the $60 per barrel, with limited conviction on both directions. On the one hand, the end of the Texas weather tragedy should temper the abnormal uptick in oil demand, restore supply in the US’ biggest oil refineries and weigh on oil prices.On the other hand, the improved positive outlook on promising vaccine results should throw a floor under the price pullback, and keep oil prices on their medium-term positive trend. Under these circumstances, the OPEC’s decision on March 4th should help investors making up their minds.There are rising rumours that Russia is willing to start curbing production cuts. The last time we saw a similar disagreement between Saudi and Russia, the price of a barrel had plunged to $ -40 per barrel.

 

 

·         Gold price analysis: XAU/USD short-term increases but keeps downtrend in the long-term

 

Gold continues moving around the price of $1780/oz - $1785/oz. This action shows the cautiousness of investors in the economic recovery and the excessive increase of Bitcoin. In the London session and New York session today, the moving will lead gold trendline in the next 3 days.

 

The DXY - US Dollar Index, moving around 90.3 - 90.5. Similar to Gold, the DXY is in an retesting uptrend after a dropping  on 17th February, under the impact of the economic stimulus package of $1,900 billion, that was just approved last week.

 

Trend analysis

On the Daily chart, Gold breaks the Uptrend (which formed from April 2020). After showing signs of breaking, Gold increased slightly from $1760/oz to $1780/oz, this is considered a process of "retesting trend". Investors should observe the price range from $1780/oz - $1800/oz to have a reasonable investment decision.

 

On the 4-hour chart, Gold continues its trend of recovery and is going in the "price channel" of $1926/oz - $1756/oz.

Resistance/Support Analysis (Supply/Demand)

After breaking the support level of $1790/oz last week, the price suddenly rose again and tested the old support zone (which becoming the new resistance zone). The $1790/oz is very sensitive. If Gold breaks this resistance, the short-term target will go up to $1810/oz - $1830/oz. In the other hand, if Gold fails to break this resistance, I recommend that you could have sell orders.

 

The Resistance levels are $1790/oz, $1810/oz and $1830/oz.

The Support levels are $1740/oz and $1760/oz.

 

Fibonacci analysis

The Fibonacci tool is measured on the daily chart at the 2070/1760 level. After reaching to the Fibonacci 0 ($1760/oz) and going up in the previous week. This week, Gold continues to keep the price close to the Fibonacci 0.

 

·         Gold Price Analysis: XAU/USD challenges key $1795 hurdle on the road to recovery

Gold (XAU/USD) is struggling to extend its recovery from seven-month lows in early Europe, as the two-week-old falling trendline resistance at $1795 on the hourly chart tests the bulls’ commitment.

However, the bull cross, with the 21-hourly moving average (HMA) having crossed the 50-HMA from below, favors the further upside.

Gold has recap

 

·         Silver gained 0.6% to $27.38 an ounce, while platinum rose 0.2% to $1,276.92.

 

·         Palladium climbed 1% to $2,403.08, having earlier hit an over one-month high at $2,431.50.

 

Reference: Reuters, FXStrteet