Daily Market Recap - GOLD Crashes below 1,780

Overall, gold's performance so far this year has been disappointing, with a decline that began on January 6. Indeed, the market has faced some headwinds so far. U.S. yields have risen faster than expected against a backdrop of increasingly optimistic prospects for the economy with the emerging U.S. stimulus package and the vaccination process underway. The 10-year rate has risen from 0.90% to 1.5% in the past two weeks.

The decline of the U.S. dollar has also stopped for the moment, which is an unfavorable factor for the yellow metal. The dollar index is trading around the levels of the beginning of the year, after a drop of almost 14% from the peak reached in March last year until the low point at the end of December.

That said, the dollar's downward trend is still in place, given forecasts of a continued deterioration in the U.S. current account deficits and a still accommodative monetary policy. The Fed Chairman confirmed to Congress that the economy is still far from the levels required for a change in policy. A resumption of the greenback's slide should therefore provide support for gold in the coming weeks.

In addition, the positioning of investors selling gold has become much thinner. Total net speculative positions in gold declined for the third consecutive week. The combination of the liquidation of long positions and new short positions among fund managers means that the net position is barely 6.80Moz long, the lowest level since May 2019, which is only about a quarter of the peak of 27.31Moz reached in 2016. From a contrarian point of view, therefore, it would appear that the positions are more balanced and less conducive to a large movement.

(Chart Source: Tradingview 25.02.2021)

From a technical perspective, gold has reached a critical level after today‘s drop at around 1,770 per ounce. Sellers have been testing this level in the past weeks and we might be in for a “third time’s the charm” type situation. A further correction below this point would open the door for a test of the 1,734.22-support channel. On the flip side, should buyers regain momentum, the first test for a trend reversal will be stabilizing above the 1,783 handles then mounting a convincing test of the 1,821.83 upper resistance level.

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.