International spot gold fell under pressure on Thursday (February 4), reaching a minimum of $1,784.91 per ounce. The strong performance of economic data and the positive turn of the epidemic situation have greatly suppressed market demand for hedging. At the same time, on the technical side, two major red flags appeared in gold, which caused the selling pressure to rise sharply. If it cannot return to the top of the $1800 mark, it may open up more downside space.
Economic data shows that the number of people claiming unemployment benefits in the United States until January 30 was 779,000, which was lower than the expected 830,000. CNBC stated that the number of initial jobless claims in the United States last week was the lowest since November 28, indicating that the US economy continued to slowly recover from the new crown epidemic, and the number of continued jobless claims continued to decline, a decrease of 193,000 from the previous week. To 4.6 million people, at its peak in May last year, it was 24.9 million people.
After the United States released better-than-expected initial jobless claims, U.S. bond yields rose further. The positive economic data in the United States and the progress of new coronavirus vaccination have boosted people’s hopes for a strong economic recovery and benefited the dollar. This is considered to be another factor that suppresses dollar-denominated commodities.
Although concerns about inflation risks and fiscal stimulus are still increasing, the current boost to gold does not seem to be obvious. The main reason is that compared with the many obstacles faced by the fiscal stimulus plan, Bitcoin seems to be an asset that people pay more attention to, especially under the influence of Tesla founder Musk.
What the market is paying attention to is that the upcoming US non-agricultural report, if the economic data continues to increase the yields of US debt, this will deal a heavy blow to the gold bulls.
From a technical perspective, the 50-day moving average of gold on the daily chart fell below the 200-day limit to form a so-called “dead cross”, indicating that the strength of the shorts continues to increase. After the market closes, it is confirmed that it has fallen below this point, which may open up more downside space. The next December low of $1764 will become the key, and gold prices are expected to test this level.
Although Sino-US relations are still tense, which provides a certain degree of hedging support for gold, it is still not strong enough. At present, gold bulls expect more of the inflation risk caused by large-scale fiscal stimulus. The budget resolution submitted by the Speaker of the US House of Representatives Pelosi and the Senate Majority Leader Schumer is the first step in the budget mediation process. As Republicans opposed the US$1.9 trillion COVID-19 aid package proposed by US President Biden, the new budget resolution submitted by Democrats will allow Congress to quickly approve the stimulus package with a simple majority. The budget mediation process can lower the threshold for passage of a bill in the Senate to 51 votes, allowing Democrats to ignore Republican opposition, but as long as a moderate Democrat senator votes against it, the bill may still fail to pass. Therefore, uncertainty still exists, which has also raised concerns among gold bulls.
Institutional analyst Sungwoo Park pointed out that due to the market’s optimism about vaccination and stimulus measures, gold’s hedging appeal has weakened. The enthusiasm for investors to buy gold ETFs has also stalled. At the same time, inflation expectations, as measured by the US 2-year break-even inflation rate, are losing momentum after the recent sharp rise. This may put upward pressure on actual yields and further hit gold prices.
Bob Haberkorn, the senior market strategist at RJO Futures, said: “The US$1.9 trillion (US economic stimulus plan) is quite large. I don’t think President Biden will be supported by the plan. This is because the price of gold has not tried to return to US$1,900. /Oz above another reason.”