Daily Market Recap - Gold has broken through 1,700 per ounce

After a very good year in 2020 and an almost stable January, gold prices recorded a sharp correction in February. The precious metal has continued its downtrend on Thursday, falling by 0.80 percent on the day.

Gold is down by roughly 17% from its peak last August and by approximately 10% since the beginning of the year. It must be noted that prices are locked in a bearish channel, so sellers are keeping their hands on the market.

“This is one of the worst starts to the year in the last 20 years, fuelled by a sharp rise in interest rates which, for the time being, is taking place without upsetting the precarious financial balances,” commented the Comptoir National de l'Or.

Since the beginning of the crisis, most states have injected considerable sums of money into the economy. In addition, central banks have printed more than $8 trillion to save the financial markets.

This liquidity has given oxygen to the economy, especially to businesses, and has also raised the risk of inflation, i.e. the risk of price increases in the medium term. In this context, investors are selling government debt, believing that despite its security, it does not yield enough in relation to inflation.

The economic outlook is improving as support plans and immunization rolls out. As a result, market participants believe that the Fed will raise its interest rates earlier than expected, which are between 0 and 0.25 percent, to cope with expected inflation starting in the spring.

Tensions on the bond market remain a key concern, whereas a sharp rise in rates last month had worried investors and caused a selling movement on equities and precious metals. On Wednesday, the 10-year US Treasury bond rate rose by more than 6 basis points to 1.481% from 1.413% on Tuesday. However, it remains below the 1.513% peak reached last week.

(Chart Source: Tradingview 04.03.2021)

To sum it up, our forecast remains bearish in the short term, with bond yields expected to rise further as growth expectations and the economic outlook brighten.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.