Gold Tumbles Below $1,800 as Dollar, U.S. Yields Run Rampant

By Barani Krishnan

Investing.com - Gold’s $1,800 support — a target for bears since its foray beneath those levels in November — crumbled Thursday under a wave of selling pressured by signs of U.S. labor market recovery and snags for the Biden administration’s Covid-19 stimulus plans.

Benchmark gold futures for April delivery on New York’s Comex settled down $43.90, or 2.4%, at $1,791.20 an ounce as rival trade, the dollar, ran rampant against almost every currency other than the pound.

Adding to the pressure from the greenback was a rally in U.S. Treasury yields, as returns from the 10-year note hit one-year highs of 1.158%. A combination of stronger dollar and yields typically suppress gold.

“The price of gold is helping to contribute to the dollar’s strength” — not the other way round — Greg Michalowski, analyst at ForexLive, said, remarking on the new normal for both the greenback and bond yields which have been strengthening despite the mounting U.S. fiscal deficit and debt accrued from the Covid-19 pandemic.

Conventionally, gold is a hedge against debt accumulation and monetary expansion.

But the favorite safe-haven of one time has foundered since hitting record highs of nearly $2,090 an ounce in early August and suffered a deeper setback from November onward as vaccine breakthroughs for the Covid-19 suggested rapid economic recovery from earlier lockdowns.

That rebound in the economy has barely materialized due to a new spike in infections and deaths from the virus and slower-than-anticipated vaccine rollouts. Those factors haven’t stopped currency and debt traders from continuing to anticipate faster GDP growth and tapering of stimulus despite the Federal Reserve repeatedly saying neither will likely be as quick as thought.

Thursday’s run-up in the dollar and yields came after data showing U.S. weekly jobless claims fell 4% last week, registering their third weekly decline that suggested a mild recovery in the labor market. President Joe Biden and Democrats backing him, meanwhile, moved cautiously with plans to table a $1.9 trillion stimulus in Congress against apparent objections of rival Republicans.

Despite Thursday’s tumble, technical trading patterns indicate gold could regain its $1,800 footing.

“Gold has come to the value area, with the spot contract having made a low of $1,784,” said Sunil Kumar Dixit of S.K. Dixit Charting in Kolkata, India. “Value buyers could emerge here and reversal is likely.”

Ed Moya of online brokerage OANDA concurred with that view, saying: “The longer-term outlook is still bullish for gold. A quick passing of President Biden's $1.9 trillion stimulus relief plan should provide some underlying support.”

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