After a slide in gold prices due to positive economic news and rising bond yields, gold miners will be negatively impacted. Strong economic data showing rising personal income, consumer spending, and durable goods orders indicates the economy is improving. Rising bond yields are also bad for gold prices. This means gold miners require a unique macroeconomic backdrop of low growth and high inflation to thrive. The recent trends may not be long lasting for bearish gold prices, but it could still take time for prices to recover.
2. Points To Be Covered Today:
โข Gold Price In 2021.
โข Fundamental News That Hit The Market
โข Implications For Gold
โข How Bond Yields Are Affecting Gold
โข Gold Miners Require A Unique Macro Backdrop...
โข Gold Technical & Fundamental Overview
4. Fundamental News That Hit The Market
โข In short, the economy seems to be recovering, while bond yields are
increasing again, sending gold prices down.
โข What happened? Well, last week was full of positive economic news.
โข In particular, personal income surged by 10 percent in January,
compared to only 0.6-percent rise in the previous month.
โข Meanwhile, consumer spending increased 2.4 percent, following a
0.4-percent decline in December.
โข This means that, on an absolute basis, personal consumption
expenditures have almost returned to the pre-pandemic level, as the
chart below shows.
6. US Initial Jobless Claims
โข Additionally, durable goods orders jumped by 3.4 percent in
January versus a 1.2-percent increase one month earlier.
โข Moreover, initial jobless claims declined from 841,000 to
730,000 in the week ending February 20, as the chart below
shows.
โข It means that the economic situation is improving, partially
thanks to the December fiscal stimulus.
9. Implications For Gold
โข What does this all mean for the price of gold? Well, the increase in the
bond yields is clearly bad for the yellow metal.
โข Although they have partially risen to strengthened inflation expectations,
the real interest rates have also soared.
โข It means that investors expect wider fiscal deficits and expanding
vaccination to accelerate inflation only partially, but in a large part, it will
speed up real economic growth. This is a huge problem for gold, as real
interest rates are a key driver of gold prices.
โข An additional issue is that the expectations of higher economic growth and
inflation create accompanying expectations for the Fed to tighten
its monetary policy and hike the federal funds rate, which exerts downward
pressure on gold prices.
โข This is what we were afraid of at the beginning of the year. We noted that
the real interest rates were so low that the next move could be up.
Importantly, there is further room for upward trajectory, as the real interest
rates are still importantly below the pre-pandemic level.
10. Implications For Gold - I
โข We wouldnโt bet on the return to the levels seen last year. After
all, interest rates didnโt return to the pre-crisis level after
the Great Recession, so itโs unlikely that they will do it now.
โข Additionally, investors should remember that the U.S.
government is now so heavily indebted that if Treasury yields
continue to increase, the Fed would have to intervene.
โข A failure to do so would mean that the interest expenses would
grow too much, creating serious problems for the Treasury.
โข So, the current bearish trend in gold may not last forever โ
although it may still take some time.
13. Gold Miners Require A Unique Macro
Backdrop...
โข WHEN gold stock bulls complain about a "smack down", a "hit"
or a "smash" against the poor gold stock sector, what they
should be thinking about is what a relatively small market the
gold stock universe is, writes Gary Tanashian in his Notes from
the Rabbit Hole.
โข Compared the multitude of galaxies populated by cyclical and
risk on stocks and commodities and the massive bond market.
โข The gold stock sector's noise to trading volume ratio must be
far and away the biggest bull market on the planet (I know
because I am part of it).
14. Gold Technical Overview
โข Gold price is fast approaching the previous dayโs high at $1783, above which the bulls will
test powerful resistance around $1790.
โข At the level, the SMA100 one-day, Fibonacci 23.6% one-month and Fibonacci 23.6% one-
week coincide.
โข The confluence of the previous weekโs high and the pivot point one-week R at $1796 will
be a tough nut to crack for the gold buyers.
โข Meanwhile, the upside momentum will remain intact so long as gold price holds $1776,
which comprises a dense cluster of healthy support levels โ SMA10 one-day, Fibonacci
61.8% one-week and SMA200 one-hour.
โข A breach of the last would expose the Fibonacci 61.8% one-day at $1772.
โข Further south, the intersection of the previous dayโs low and pivot point one-day S1 at
$1767 could likely guard the downside.
16. Gold Fundamental Overview
โข Gold price is advancing for the third straight day on the final trading day of this week, with
all eyes on the much-awaited US NFP data release to confirm the bullish reversal from
two-month troughs of $1751.
โข The recovery in gold price is gaining traction despite the persistent strength in the US
dollar against its main peers.
โข The Fedโs willingness to resort to monetary policy normalization has emerged as the main
driver behind the greenbackโs surge. However, the US Treasury yields are on a losing
spree, which has fuelled goldโs advance.
โข Delta covid strain flareups have raised concerns over its impact on the global economic
recovery, boosting gold at the expense of the risk-sensitive assets.
โข Goldโs fate now hinges on the US NFP data, which is likely to throw fresh hints on the
Fedโs next policy move. However, if the data disappoints just like the last time, gold price is
likely to recapture $1800 while the dollar reverses recent gains.
18. Metals Bullish Themes
โข There are many threats to growth, which is positive for gold.
โข Gold to take advantage of higher and more permanent inflation.
โข Basel III to send gold to higher ground.
โข Delay in tightening to de-anchor inflationary expectations and trigger an inflationary spiral, pushing
gold up.
โข Hedge funds getting bullish on gold.
โข Gold to benefit from biden's unsound economic ideas and policies.
โข Cryptocurrencies to be seen as complementary, not substitutive to gold.
โข The fed remaining dovish is bullish for gold.
โข Cryptocurrency crash benefits gold.
โข Rising middle east conflicts fuel gold.
โข Higher and more permanent inflation is positive for gold.
19. Metals Bearish Themes
โข Hawkish Fedโs statement is fundamentally negative for gold.
โข Increasing bond yields bodes ill for XAU/USD.
โข Gold to fall on talk of Fed tapering.
โข As long as real interest rates are rising, gold will be in trouble.
โข Institutional flows to Bitcoin strikes gold.
โข Good news on the COVID-19 vaccine front while Biden transition kicks off.
โข The rise of vaccines, one step closer to beating this virus.
โข Improved productivity thanks to telework is bad news for gold.
โข Gold is a reservoir for needed margin call money.
โข Iron ore future demand to wane.
โข Optimism among investors is bad things for gold.
โข Fool's gold as fiat inflation hedge.
โข Palladium affected by decreasing car sales worldwide.
