International spot gold rallied strongly on Monday, hitting a high of $1809.13 an ounce, back above the $1800 mark and back inside the previous downtrend channel, which gave the bulls some breathing room. Treasury yields a slight retracement and the risk of inflation brought effectively boost the payable to gold, at the same time the currency price within short line fell, also released market hedge funds, this brought multiple positive for gold, but the current market sentiment volatility, short-term situation may be reversed at any time, so the gold bull is still cautious.
Mr Musk’s influence on the market was again on full display today. His support for bitcoin last week helped its price soar 20% to more than $58,000 at one point. Over the weekend, however, the intraday fell sharply after Musk tweeted that the price was too high. At one point, the intraday fell more than 16 percent and fell below the $50,000 mark, but the drop quickly pared back to around 7 percent.
At the same time, US Treasury Secretary Janet Yellen also mentioned bitcoin and cryptocurrency in her speech today. She said that digital currency may lead to faster and cheaper payment, but many issues need to be studied, including consumer protection and money laundering. Bitcoin is often used inefficiently for illicit financing; It makes sense for the Fed to study digital dollars; Bitcoin is highly speculative and people should be careful.
As analysts have pointed out, Bitcoin’s price is still too volatile due to its relatively weak liquidity, making it an extremely dangerous asset for leveraged contract players, with small buy and sell transactions prone to big price changes.
Nonetheless, the pullback in bitcoin prices provided some support by taking some of the safe-haven buying pressure off gold assets. Howie Lee, analyst at OCBC Bank, said: “The falling dollar is helping to offset the rise in Treasury yields and gold is in a fantastic position… There is clearly a need to hedge against inflation, but firmer risk sentiment is weighing on gold.”
On the other hand, if the US economy performs better than expected, and inflation accelerates, the Fed could reduce its asset purchases sooner than expected. That thinking has prompted investors to continue selling Treasurys, sending the yield on the 10-year note above 1.30 per cent, the level last seen before the outbreak. It is now around its highest level since February. The surge in yields, in turn, has supported the dollar index and dragged gold lower.
As the market continues to focus on the direction of economic data and the tone of Fed officials, investors will want to see if they can step up their accommodative stance this week with two congressional testimony from Fed Chairman Colin Powell and speeches from a number of top Fed officials. If the rise in yields can be slowed or even reversed, the dollar will continue to be depressed, setting the stage for a gold rally.
Technically, gold needs to move back to the $1800.00 / oz area, preferably $1830.00 / oz, before the long position adjustment can start to work again. The Fibonacci 50% level of $1,760.00 remains the key support range for gold. A daily close below $1760.00 points to a further drop to Fibonacci 61.80% at $1688.00. Losing this level means a deeper pullback to the $1600 / oz area.
Ole Hansen, head of commodity strategy at Saxo Bank, says he is bearish on gold, even though the fundamentals are still very positive. “Investors are going to have to suffer before gold turns higher. Inflation is bound to rise and real interest rates will then stabilise.”
David Madden, the senior market strategist at CMC Markets, said the performance of bond yields will continue to weigh on gold, but the outlook for gold remains positive. “Higher bond yields will fuel market expectations of higher interest rates, but no central bank in the world wants to raise rates, so there is still the potential for higher gold prices.”