Bond Yields, Cryptos, and Gold
The gold market is off to a slow start Monday morning. Stable bond yields and stronger stocks are both taking a toll on the yellow metal which is down over $7 per ounce in early action. Some fresh chart based selling is also being seen today as the bears look to build upon their current technical advantage on the daily chart.
This week, investors are likely to remain focused on bond yields and may also pay attention to economic data set for release. The gold bulls may be on the lookout for any weaker than expected data or other issues that could point to the Fed keeping its foot on the gas pedal. The central bank did recently reiterate its views on rates, stating that it would hold rates steady around current levels for some time to come, despite the threat of rising inflation. The central bank’s credibility is always in question, however, and investors would likely feel better seeing more reasons for the Fed to hold rates steady.
Amid rising bond yields, an economy that is recovering and a very accommodating Federal Reserve, the rise in Bitcoin and cryptocurrencies is also becoming the subject of more speculation and discussion. Bitcoin is valued today at nearly $60,000 per unit. As its price grows, so seemingly does the interest in the currency.
Fed Chairman Jerome Powell is discussing cryptocurrencies today, suggesting that the asset class is “substitute for gold, not U.S. Dollar.” Several leading global central banks have, in fact, suggested that they are not threatened by cryptocurrencies at all. The crypto market volatility seems to be a major stepping stone for these currencies to become more widely used and accepted, and that volatility does not appear ready to subside any time soon. Despite cryptocurrency drawbacks, however, this market may continue to compete with gold and other asset classes as a store of value and protector of wealth.
A further rise in cryptocurrency prices may keep any rallies in gold limited. Despite any potential rise in currency values, however, the gold market still has numerous reasons to move higher. The combination of easy monetary policies, rising inflationary pressures and dollar weakness could all keep a bid going in the gold market for the foreseeable future. A sudden dollar reversal or change to monetary policies could, however, deflate interest in gold and cause a fresh wave of selling to enter the market, taking prices lower in the process.
The bears still have the technical advantage on the daily chart and will look to build momentum with further downside. The nine-week old downtrend on the daily chart was negated last week, however, and the bulls could have the potential for a market reversal in the days ahead. The bulls will need to take out key resistance in the $1775 area before getting overly excited and could target the $1800 region in the days ahead. On the downside, the bears will target the March lows around $1673. A breakdown below this level, on a closing basis, could set the stage for a fresh wave of selling that could potentially see prices hit sub-$1600 levels.