The gold market kicked off the new trading week on a sluggish note, declining by some $22 per ounce in late afternoon trade. The yellow metal was likely falling victim to chart based selling that gave investors reason to hit the sell button. Of particular note Monday was gold and silver’s ignorance of a risk-off scenario in the markets. The failure of the metals to catch a bid in early action Monday could be a warning signal to bulls and may suggest that additional bearish pressure could be on the horizon.

The story of the day is the margin calls being experienced by Archegos Capital Management. The firm reportedly dumped some $30 billion in holdings late last week and that move could have been due to being overleveraged. The major concern was for the potential of contagion in the markets. Thus far, however, markets have shown little interest in the scenario and any contagion effect appears to be limited, if existing at all.

That could change, however, and any signs of market contagion have the potential to light a fire under gold and silver. Worries over a more damaging effect could send bids into the precious metals space immediately as investors look to escape the potential carnage.

In other news, investors are looking forward to the Biden Administration’s release of its next economic plans, due to be unveiled Wednesday. The first of two sections of the administration’s agenda, the proposal could reportedly cost several trillion dollars and may also include a substantial amount of new tax revenues. It is unclear what effect, if any, the proposal may have on the metals markets. Any significant uptick in spending without the means to pay for that spending could pressure the dollar and drive buying in the metals as a hedge, however.

A big plus for the gold market in recent years has been the global move away from the U.S. Dollar. That move appears to be ongoing. The Russian National Wealth Fund recently announced its intention to move into gold. The move likely has something to do with Russia’s de-dollarization efforts which have been ongoing for several years now. The Russian central bank stated in January that its gold holdings had finally surpassed its dollar holdings. The central bank has reportedly purchased over 200 tonnes of gold on average per year since 2014 with the exception of last year’s smaller total.

The dollar did, however, hit a four-month high today as worries over the hedge fund default took hold. The Dollar Index is now at the highest level since November 2020 and could potentially be poised for further upside. Any additional gains may weigh on the gold market, while a reversal lower could set the stage for stronger gold and metals prices. With today’s poor showing, the bears are again in control on the daily chart and may look to expand the downtrend that has been in place several weeks now.

The gold market is under pressure Monday as the new trading week gets underway. The yellow metal is seeing some selling enter the market as it is forced to compete with other asset classes. Rising bond yields coupled with a stronger U.S. Dollar Index is giving investors pause and a reason to hit the “sell” button today.

 

The benchmark U.S. 10-year note is yielding around 1.62% early Monday afternoon. This key treasury contract has been seeing a steady climb in its yield. That ascension has investors worried, and higher yields may not only negatively affect the price of gold but may also have a bearish influence on stocks. Although the current currency yield itself may not be a cause for concern, the steep uptrend in yields could be indicative of rising inflationary pressures or worries about the Federal Reserve’s plans going forward. Whatever the case may be, treasury yields are worth watching and gold investors will likely pay close attention to yields in the weeks and months ahead.

 

The dollar has hit a 3.5 month high and has been trending higher in recent action as well. Currently sitting at 92 and change, the Dollar Index could potentially make its way towards the 94 region before finding more serious selling pressure. The greenback is currently benefiting from stock weakness and the recent passage of Biden’s $1.9 trillion stimulus package.

 

Geopolitical risks may be on the rise, however, and have the potential to provide a much needed boost for gold and metals. Over the weekend, Houthi rebels staged a drone attack on Saudi Arabian oil facilities that led to a rise in crude. The oil market hit over $67 per barrel before backing off on profit taking. The situation is also likely to be closely monitored by global investors, as any further escalation has the potential to affect global oil supplies running out of the Persian Gulf region.

 

Recent Chinese economic data would seemingly suggest that the globe’s second-largest economy is running at full speed. Overnight, China reported that both imports and exports rose sharply above expectations. Further positive economic news from China may keep gold supported as it could be indicative of stronger metals demand from China.

 

The gold market is in a downtrend on the daily chart and prices stooped to a 10-month low today. The question now becomes how much lower might they go? The $1600 may seem like a far ways off, but the market could reach that price point within days. Strong technical support in the region could keep the yellow metal from falling any further, however, and the bulls could become increasingly aggressive on any moves lower. The bulls, on the other hand, will likely target resistance in the $1750 area as a first step. The market is really in no man’s land at current levels and the next several sessions could dictate whether the bulls or bears control the metal for the foreseeable future.

The gold market is seeing some buyers step in this week as the Dollar Index comes under renewed pressure. In addition to the weaker dollar on Tuesday, gold also likely got a bounce higher from stronger crude oil which traded over $60 per barrel Tuesday.

 

The gold market has continued to hold off recent selling pressure, however, it remains unclear how long the market may be able to stem the tide of willing sellers. After hitting a nine-month low overnight, the gold market saw a mild corrective bounce higher. The yellow metal has been hampered of late, as dollar weakness has subsided and as stock markets have continued to march higher. The benchmark 10-year U.S. Treasury yield now stands around 1.44%. A slight decline in yields sent stocks roaring higher on Monday, although many analysts seemingly believe the recent ascent in yields could continue.

 

The topic of potential inflation has been a mainstay in financial media for weeks now. Overnight, data from the Euro Zone showed an inflation reading of up .9% after a January reading of .9% higher. Although inflation has seen a slight climb according to some key data points, it remains quite far from the levels associated with being problematic. Inflation data later in the year may become more telling, as it would paint a better picture of global economies that are starting to run hot.

 

The Fed is also likely to continue to play a key role in gold’s fortunes. The central bank recently suggested that it plans on keeping its easy money policies in place, despite the potential for an inflationary battle. The recent rise in yields was seeming to suggest the Fed could begin to tighten sooner than expected. The Fed has, however, quelled that notion as it looks to get more Americans back to work. The labor market may hold the key to when the Fed reverses course, and the central bank is likely to take extra caution before tightening too soon in order to make sure as many Americans benefit as possible. Inflation is still running below the Fed’s desired 2% annual target as well, and the Fed will likely want to see inflation run at or above 2% for a period of time before it starts to tighten policy. The idea of an accommodating central bank may keep the gold market and other hard assets in play for the foreseeable future.

 

Make no mistake, however, the gold bulls do have their work cut out for them. The market remains dangerously close to near-term support. A breach below recent support could set the stage for a significant leg lower that has the potential to wipe out any bullishness in one swift stroke. A breakdown below the $1700 could trigger a large wave of selling that could drag the market sharply lower.

 

The bulls on the other hand, have their eyes set on a close above the $1800 level. A solid close above this area could fuel further buying interest in the market as traders and momentum players look to jump on the bandwagon.

The gold market may see continued buying interest on Tuesday as the trading week gets underway. Monday saw little action as U.S. markets were closed in observance of the Presidents Day Holiday. As traders and investors return, the focus for markets is likely to be centered around equity markets, the threat of rising inflation and monetary policy.

 

The big news over the last several days is without a doubt, the acquittal of former President Donald Trump. Although the vote carried significantly more “guilty” votes than “not-guilty,” the senate still lacked the necessary two-thirds majority required by law for a conviction. The biggest question now is how might Trump look to remain heavily involved in Republican politics. Of course, time will tell how Trump will play his cards. In the meantime, however, the government and even some Republicans will try to figure out how to move on in his absence.

 

One of the major issues that the Trump administration dealt with is energy independence and the need for domestic oil. The Biden administration has already placed a moratorium on new oil and gas leases and drilling permits in a move that could potentially send the price of oil higher. Crude oil futures for March delivery have recently breached the $60 per barrel level on the upside. This higher price of crude oil could be indicative of rising inflationary pressures that could send the cost of everyday goods and services sharply higher.

 

Not only have oil and some other markets provided possible clues as to rising inflation, but the massive stimulus package currently being discussed by U.S.leaders could also fuel rising prices even in the face of the ongoing viral pandemic.Treasury Secretary Janet Yellen, a former Fed Chairwoman, recently suggested in an interview that the stimulus bill carries with it the risk of inflation, but that the risk of not doing enough to fight the pandemic is greater. Although significant inflation could be and likely is a ways off still at this point, the more it is discussed the more that investors may seek out perceived safe haven asset classes to hedge their risk. The threat of rising inflation, now or down the road, could keep investors turning to alternative asset classes such as gold to mitigate their inflation risk, especially if the dollar weakens further.

 

Gold’s allure as an alternative monetary asset is not limited to investors, either. The state of Idaho recently approved a bill that would allow the state to hold physical gold or silver as a means of hedging inflation and a debased currency. The House Bill 7, as it is known, will now head to the state Senate for another vote after receiving widespread backing in the House. The Senate could meet as early as this week to begin discussing the legislation.

 

The gold bulls have been patient, but their patience could eventually lead to downside in the market if there is a lack of upside for the bulls to get excited about. With the market currently sitting around the $1818 area, the bears will look for a close under $1800 while the bulls may need to see a close above $1900 before getting more aggressive.

The gold market has made tremendous headway in the last year. The year ahead could, however, make last year pale in comparison. There are several major issues that could set the stage for gold’s rise in the month and years ahead. Many of these issues could find resolution in 2021, setting the base for a rally that could extend for several years or longer. This brief guide will highlight some of the major issues that markets must now contend with and discuss how they may affect the price of gold going forward.

 

Covid-19 Pandemic

 

The ongoing Covid-19 pandemic has dominated financial headlines for months now and could continue to do so for many months ahead. The virus has killed many people, infected millions and spread all over the globe in short order. Despite the recent distribution of multiple vaccines, the virus has maintained a stranglehold on the global economy. Recent death rates in the U.S. have reached record levels, and as the old saying goes, it may “get worse before it gets better.”

 

Widespread vaccine distribution is likely to take several months, with many healthy individuals likely not getting vaccinated until late spring or even early summer. As many bars, restaurants and other businesses remain closed, the long-term economic effects of the viral pandemic may not be determined for some time yet. Stocks, for example, still have the potential for a massive meltdown if economic conditions take a turn for the worse. Despite recent issues and challenges presented by the pandemic, stocks remain near all-time highs and could continue to work even higher in the months ahead.

 

Interest Rates

 

The Federal Reserve and other global central banks have once again taken key interest rates down to zero in the hopes that low rates may spur economic activity to combat the effects of the viral pandemic. In addition to lowering key interest rates, central banks have also engaged in significant quantitative easing operations in order to keep rates low.

 

The effects of central bank action remain unclear. Central bankers do appear ready, however, to maintain ultra-low rates through the year and possibly beyond. This period of very low interest rates could be considered bullish for gold and other hard assets.

 

Although expectations are strong for the Federal Reserve sitting tight through the end of the year, there is always the possibility of the central bank acting quicker if conditions change. A steep and rapid rise in inflationary pressures could, for example, force the Fed to begin tightening faster than currently expected. A rapid economic recovery once the viral pandemic is brought under control could also force the hand of central bankers. Whatever the case may prove to be, global central banks and interest rates are likely to play a key role for gold in the year ahead.

 

The U.S. Dollar

 

The dollar index has recently traded at multi-year lows versus a basket of key currencies and its downside may be just getting started. The effects of ultra-low interest rates combined with significant quantitative easing have fueled the bears in recent months. The incoming Biden Administration, should it continue with current monetary policies, could see another sharp decline in the value of the dollar that could see it trade at levels not seen in many years. As the dollar loses value, the cost of everyday goods and services rises, effectively lowering the disposable incomes of Americans and those who use the dollar. This income lowering effect even extends into investment returns, lowering the net value of returns, sometimes significantly.

 

The effects of significant dollar weakness can be long-lasting and profound. The greenback is not only suffering from the effects of current monetary policies, but also is likely seeing additional weakness as its status as the global reserve currency of choice becomes increasingly threatened. The dollar has long been valued as a reliable store of wealth and value. That notion has come under fire in recent years, however, as the currencies of other nations have become increasingly valued. An ongoing deterioration of the dollar’s value or a switch to an alternative by global central banks could send the dollar sharply lower. Gold and other dollar-denominated assets could stand to benefit handsomely if the dollar drops further. Gold and other metals may, therefore, be purchased in the year ahead as a meaningful hedge against a weaker currency.

 

The three issues listed above could become key drivers of the gold market in the year ahead. There are, however, numerous other factors that may also contribute to gold’s price action in the coming months. These include U.S. politics, Brexit and equity market behavior.

 

Against the current geopolitical and economic landscape, the gold market could be poised for some serious movement this year. Recent price action has suggested that the trend higher may be set to continue and even reach new heights. The market may continue to be bought aggressively on any significant dips in price as well, further bolstering the bulls’ case for fresh all-time highs in the near future.