International spot gold on Monday (January 11) after a short dive after the decline of the lowest hit $1,816.76 an ounce, but as the safe-haven demand picked up, gold slowly recovered to near the flat, maintained around $1,850. Changes in risk sentiment have continued to influence gold prices in recent days, as the political situation in the United States remains unstable and the potential for turmoil has created solid safe-haven demand. But what’s really affecting gold is the continued rise in U.S. bond yields, which is preventing real interest rates from falling.
While investors continue to believe that both U.S. politics and the epidemic are underpinning safe-haven demand, the main reason for gold’s decline is actually the rise in U.S. Treasury yields. The bull market in both US and global financial markets has been largely predicated on the fact that real yields on US Treasuries remain low. But what has happened is that the nominal interest rate on the long-term Treasury bond has started to rise before inflation, so the real interest rate on the 10-year Treasury bond has risen, which is the reason for the divergence from the short-term real interest rate. This has led to significant challenges for both gold and equities.
On the other hand, a rise in the yield on the 10-year Treasury note led to a rebound in the dollar, which added to downward pressure on a range of assets. In addition to risk aversion, the dollar’s rise was supported by six factors, which Forexlive pointed to as: the impact of the Democrats’ win in the Senate, where Biden will unveil his “trillion-dollar” stimulus plan on Thursday, which could lead to long-term economic growth and thus boost investment in U.S. assets; The U.S. will be one of the first countries to vaccinate a large portion of its population and get herd immunity, which forms the basis for predicting a rebound in U.S. GDP; Treasury yields were higher; The Fed’s ultra-dovish stance may shift; From a technical point of view, the dollar has a long-term decline, bottoming out; And the turnaround heralded by crowded dollar selling positions.
In terms of the outbreak, scientists have warned that England may need to adopt more stringent blockade measures, and health officials have urged people to follow the rules of blockade. The British government held two meetings of ministers on Sunday to discuss how to enforce the current blockade more strictly and whether tighter restrictions might be needed. British Prime Minister Boris Johnson confirmed that information in a speech on Monday. At the same time, the market is concerned about the strict restrictions that the Chinese government has imposed in many places in recent days.
At the same time, markets are also focused on U.S. House Speaker Nancy Pelosi’s plan to impeach Trump for a second time. In addition, on January 9 local time, Pompeo announced that the US State Department had lifted the self-imposed restrictions on US-Taiwan exchanges that the US had imposed for years. Pompeo’s statement said that the administration can now invalidate all guidelines previously issued by the State Department on behalf of the secretary of state regarding contacts with Taiwan. This has kept political risk in the US and between the US and China rising, affecting risk sentiment in the market.
Technically, gold is currently hovering around its 200-DMA and will come under more selling pressure if Treasury yields continue to move higher. Gold’s resistance is currently at $1,892.50, the 100-DMA. Support is seen in the $1820.00 area, with key long-term support at $1760.00, the Fibonacci 61.8% level tracked in November.
MarketPulse noted that $1,760 / oz was previously highlighted as a long-term structural low for gold prices. As long as $1,760.00 remains unchanged, gold itself will maintain its long-term uptrend. But a break at $1,760 would need to be reassessed, in which case gold’s decline could initially extend to $1,650.00.
The latest TD Securities analysis says: “Given that vaccine programmes in the US and much of the world are well behind schedule and the pandemic is still spreading, economic conditions will remain weak for some time. This suggests yields may not be as high as some gold traders have been betting on, which is good news for gold prices.”
Kshitij Purohit, chief commodities and currency analyst at Capitalvia Global Research, noted that the rally in the U.S. dollar index prompted a sell-off in gold. “In the short term, the equity market will put pressure on gold, the dollar will continue to rally and investors will start to take profits,” he said.