The price of gold plummets $ 100 this week as economic prospects remain bleak and bitcoin competes for safe haven status

(Kitco News) Gold fell about 4% on Friday, as investors liquidated the precious metal amid a spike in the U.S. Treasury yield market.

Comex gold futures contracts for February were last traded at $ 1,839.40, down 3.88% the following day, after breaking a key level of $ 1,850 an ounce.

“There are two catalysts now that are causing the gold to be liquidated. Increase in bond yields and the economy in trouble. This is causing liquidation and money flight, ”said Peter Hug, director of global trade at Kitco Metals. “The yield on 10-year bonds rose above 1.1%, which is a significant movement in yields. This morning, you also had much more negative employment data than expected, indicating that the US economy may be in trouble in the first quarter. “

The market’s usual reaction to bad economic news is a shift to money, Hug noted. “Commercials are moving out of gold and into money, investing in the stock market or 10-year bond yields,” he said. “There was also a disappointing vaccine launch. It will get worse before it gets better. “

Hug added that it is starting to look similar to what happened in March, when the gold was sold amid the first round of COVID-19 locks.

Contributing to the fall in gold was a technical failure, Walsh Trading co-director Sean Lusk told Kitco News. “We still had a lot of features on the market. The blocks are narrowing. The whole flow is going to the stock market. “

The increase in Treasury yields is one of the main culprits behind lower gold prices, Lusk noted. “What’s more, you had an increase in Treasury income, which decreased your appetite for gold, and we had a loss of $ 100 this week,” he said.

The Treasury’s higher yields are providing a kind of offer for the US dollar, which is responsible for selling gold, said OANDA senior market analyst Edward Moya.

“At the moment, there is a mixed outlook for the dollar. The bearish dollar trade was overcrowded. Therefore, investors are undoing some bets on gold because there is an expectation of a recovery in the dollar, ”said Moya.

Another factor is bitcoin competition, according to analysts. While gold prices lost $ 100 this week, bitcoin rose more than $ 10,000, reaching a new record of more than $ 41,000 on Friday.

“Bitcoin is drawing some appeal here. Nothing rational behind it, ”said Lusk.

There is a major fundamental shift happening for many investors, said Moya. “Expectations that gold will be a protection against inflation have taken a back seat to cryptocurrencies, especially bitcoin,” he told Kitco News. “At the moment, there is a lot of institutional interest in the diversification of gold.”

Moya sees the bitcoin bubble burst and gold rising with the idea that it is a great protection against inflation.

Price levels

The big question in the future is whether the $ 1,850 level remains or not, analysts said.

Short-term drops of around $ 1,850 were bought in mid-December, which is what can happen here too, noted Lusk.

Hug said he was surprised to see gold fall so much on Friday. “I thought the $ 1,875 level would be maintained. I don’t expect gold to exceed $ 1,850 today. And as long as that level remains, the gold market will still be in an upward trend. “

If gold falls below $ 1,850, then $ 1,825 is possible, and if that doesn’t hold up, $ 1,800 becomes support, Hug added.

Lusk is evaluating whether $ 1,828 is valid or not. “If we reach $ 1,800, we will drop about 5% in the year,” he said. “Close to $ 1,828 takes you to $ 1,800. And $ 1,778 is the next level below. “

Moya added that he sees prices eventually stabilizing, but first, he would like the $ 1,850 level to remain. “Everyone will focus on November lows, when we saw gold drop just below $ 1,770. That will be the line in the sand. I would be surprised to see $ 1,800 breached, ”he said.