March 2, 2021

Why is gold trending down these days?

Why is gold trending down these days and what to look out for

The world saw more than 115M cases of COVID-19 and over 2 million deaths related to this virus since the pandemic started a little over a year ago. Now, a total of seven vaccines are available for public use, in limited quantities, in at least 107 countries. Slowly but surely, countries are opening up again and returning to “life as usual”. Is this bringing the price of gold down?

Not necessarily.

According to  nna Golubova at Kitco, the main downward triggers for gold have been the rising U.S. 10-year Treasury yields, which hit a one-year high of 1.6% overnight, and a stronger U.S. dollar.

Last Friday's selloff was also accelerated by technical selling after the metal fell below the 200-day moving average, Kitco Metals global trading director Peter Hug said.

"Right now, you got computers selling accelerating the move lower," Hug said. "When we spoke last Friday, we were looking for an upward move in gold. But when we got to $1,817 on Monday, the 10-year yield was around the 1.20% range, now it is north of 1.50%."

Gold was down on Tuesday morning in Asia, even with a retreat in U.S. Treasury yields and progress on a massive stimulus package in the U.S. cheered investor sentiment.

Benchmark U.S. Treasury yields retreated further from a one-year high hit during the previous week, with the U.S. Federal Reserve continuing to downplay inflation concerns.


What should investors look out for?

- The Fed Chairman Jerome Powell will speak at a Wall Street Journal event this Thursday where he is expected to discuss the economy. 

- Debate on a $1.9 trillion stimulus package will begin in the Senate later in the week, the chamber’s Majority Leader Chuck Schumer said on Monday.

- Markets are more optimistic, pointing to stimulus progress and quicker-than-expected vaccine deployment. The growing concern now is stimulus money accelerating inflation and steepening the yield curve.

Meanwhile, Wells Fargo said that it would expand its precious metals trading business. And across the Atlantic, the European Central Bank reduced its net purchases of debt during the previous week, even as borrowing costs rose in the financial markets. The decision cast a shadow over the evolving recovery from COVID-19 in the euro zone economy, where the virus’ impact is still being felt. 

"Eventually, we should see gold better, especially with the record debt and equity market is risk-off sentiment," stated TD Securities head of global strategy Bart Melek. "Once we settle and it becomes apparent that the U.S. economy is not that wonderful, there will be a rebound in gold. The market will get around to that idea, and gold will start to move up. We could see this at the start of the second quarter."