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Gold traded downwards last Friday, mainly due to US bonds reaching a yearly high of 1.6% overnight, which prompted the US dollar to rise sharply in the markets.
Peter Hug, director of KITCO, said he was on the lookout for an increase to $ 1,817 this Monday, but the yield on the 10-year US bonds hit 1.20% and then above 1.50%.
As a result, investors are beginning to withdraw from stocks and turn to cash, which is bad for gold.
"Gold may trade at $ 1,660 an ounce this week," said Bart Melek of TD Securities. "There is a growing concern about the new stimulus, which accelerates inflation and steepens the yield curve," he added.
Apparently, market players are worried that the Federal Reserve will raise interest rates earlier than expected. And if they do, the yield curve will most likely widen further, which is bad for gold.
"As long as the curve is steep, gold will fall," Melek said.
Stocks fall every time yields rise because investors worry that the Fed is underestimating inflation.
"If US Treasury Secretary Janet Yellen or Fed Chairman Jerome Powell speaks up and says they are holding back yields, gold will skyrocket," said Daniel Pavilonis of RJO Futures. "But yields may need to be raised up to 2% before the Fed gives this answer."
But based on their recent statements, the Biden administration will continue a soft monetary policy, more stimulus and a strong stock market. "The more the incentives, the more profitability grows. They need to acknowledge the problem and continue to stimulate," Pavilonis said.
But in the long term, if this continues, the US will have to face massive disruptions such as the closure of businesses that require low interest rates.
"At the end of the day, we need to see gold at the best prices, especially given the all-time high in debt and increased demand for risky assets," Melek said. "As soon as we settle things and it becomes clear that the US economy is not that good, gold will rebound. The market will understand this, and gold will start moving up."
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