International spot gold on Wednesday (February 24) fell again under pressure, the lowest hit $1783.56 / ounce, back below the $1800 mark, can be found with the interweave of multiple forces, gold is still difficult to organize an effective counterattack, so as to get rid of the downward channel since the beginning of August. The Fed Chairman’s renewed emphasis yesterday on maintaining quantitative easing is actually positive for gold, but this did not change the performance of the USD and the neutral trend for US bonds. Coupled with the fact that investors are divided over the impact of massive fiscal stimulus, it is hard for gold to find a consistent support.
Treasury yields pulled higher again, hitting 1.4 percent on the 10-year note for the first time since February 2020. The 30-year Treasury yield rose more than 10 basis points on the day to close at 2.29 percent. The latest news pointed to a steepening of the US Treasury yield curve, with the spread between the two-year 10-year note reaching 130 basis points, the highest since late 2016.
U.S. government bonds have sold off in recent months after President Joe Biden pledged to spend $190 million to alleviate the new pandemic, stoking fears that the president’s plan will fuel inflation in the world’s largest economy. While gold is a hedge against inflation, inflation also erodes the cash value of bond income, causing Treasury yields to rise. Higher Treasury yields, in turn, undermine the appeal of gold without fixed income, leading to continued selling of gold. Combined with the large-scale fiscal stimulus will also increase the risk sentiment of the market, which will suppress the safe-haven buying of gold. Therefore, in a comprehensive view, the large-scale fiscal stimulus may have limited effect on the boost of gold, which has also become an important reason for the delay of gold bulls.
In terms of geopolitical risks, China and the West once again clashed at the United Nations, with the United States, Canada and Europe criticizing China over Xinjiang, Tibet and Hong Kong, and China’s representative to the United Nations hitting back hard, causing further tension.
Technically, gold is currently forming a double bottom around the Fibonacci area of $1,760.00. This highlights its importance as a key long-term support area, and a breach of this level now would almost certainly send gold towards a low of $1,600.
Gold’s initial resistance is at $1830, but stronger resistance remains above the 50-dma, 100-dma and 200-dma. All three moving averages are concentrated between $1,850.50 and $1,860.00.
Notably, data through Feb. 23 showed holdings in the SPDR gold ETF had fallen for the 10th straight year. The SPDR gold ETF has sold 60 tonnes of its holdings so far this year, suggesting that the world’s largest gold ETF is bearish on current prices.
AirGuide’s Michael Langford notes that Powell’s comments suggest that the effects of stimulus on the market will not go away for at least the next six months. As a result, dollar weakness and stimulus-driven inflation will be key drivers for gold.
MarketPulse, on the other hand, noted that gold’s inability to rally effectively despite multiple supportive factors suggests the rally is rapidly waning. Gold can’t even get back to $1, 830. If another day sideways, bears will sharpen their claws again.