On March 8, gold lost another 1% to reach its lowest level in nine months. The decline happened as the US dollar and treasury yields continued to gain some momentum which encouraged many investors to offload the precious yellow metal.
Analysts believe that the rising yields and higher dollar are causing problems for gold. The dollar hit a 3-month high while the US 10-year Treasury yield traded near a 13-month high. The chief commodity strategist at TD Securities, Bart Melek, said:
“We have an economy that is recovering and inflation is materializing; that ultimately means that yields have room to move higher.”
Notably, the newly-approved $1.9 trillion COVID-19 relief package also failed to boost the yellow metal. In many cases, the bullion is considered a haven asset against inflation. But, rising bond yields in 2021 seem to have threatened the status of the precious metal. As a result, the opportunity cost of holding gold increased significantly.
The Federal Reserve’s failed attempt to respond to the recent surge in US yields is also believed to have weighed on gold.
Technical Analysis
Spot gold price plunged by 0.9% to bottom at $1,676.91 per ounce which is its lowest since June 8, 2020. Analysts think that the bullion might remain in the $1,650 – $1,700 range in the short term. Then, a plunge below $1,650 might happen in the mid-term which will introduce more selling pressure to the market, according to Edward Moya, a senior market analyst at OANDA.
On the flip side, TD Securities’ Melek also believes that the prices of gold might continue to drop to $1,660. That is a strong support area, which is driven mainly by the 100-WMA at $1,648 per ounce. Such price action is likely to facilitate the entry of new investors into the market who are seeking to buy gold.
Analysts now are convinced that gold might retest the $1,650 area where strong support has developed. On the upside, the key target is $1,750 per ounce, the former horizontal support.
In summary, gold was seen to drop to reach a 9-month low as the dollar and the US treasury yields continued with their rally. The price action encouraged traders to dump the bullion. How low will it drop?
