Price of Gold Fundamental Weekly Forecast – Longs Could Abandon Ship if Yields Continue to Rise

Gold finished an uneventful week lower after posting a mostly rangebound trade as investors continued to search for a bullish catalyst to drive prices higher. What is starting to become clear to many of them is that gold is an investment that competes with stocks, bonds and currencies, or basically any asset that pays investors to hold it. Furthermore, gold bulls may also be starting to realize is that the fundamentals change and that the promise of more and more fiscal and monetary stimulus may not be enough to drive prices higher.

Last week, February Comex gold settled at $1829.90, down $5.50 or -0.30%.

Trying to trade the headlines has been a problem for gold traders also especially when brokers tell the newswires that gold is going up because of “safe-haven buying”. What does that mean anyway? We’ve seen time over time that the true safe-havens are the U.S. Dollar, Treasury Bonds and the Japanese Yen. Gold sometimes has the appearance of a safe-haven which may be confusing investors but I think it wears the hat of a funding investment at time. I mean where do you think the money came from that started the stock market surge in early November.

We saw last week that problems getting the vaccinations distributed, rising coronavirus cases, weakening economic data and a dovish tone from the Chairman of the Federal Reserve failed to fuel a rally in gold. And why was this? Rising Treasury yields and safe-haven demand for the U.S. Dollar.

It’s rising yields that should be the biggest concern for gold investors at this time as the February futures contract hovers just slightly above 50% of last year’s March to August rally at $1780.50. This is likely to be the key level that dictates the direction of the market over the near-term.

Buyers could come in on a test of $1780.50 this week. This is because it represents value to investors. The actual support zone is formed by the 50% level at $1780.50 and the 61.8% level at $1705.20. On November 30, buyers came in at $1767.20, helping to fuel a nearly $200 rally in about 30 days.

Will they come in again between $1780.50 and $1705.20? I think so, but will we see another prolonged rally? I am not confident in that taking place unless we break the long pattern of lower tops. Furthermore, 10-Year Treasury yields would have to break under their December lows to create enough upside momentum in gold. And that would happen if economists start predicting a recession in 2021.