Should you invest in Gold as prices extend decline? Analysts weigh in

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His… read more.
on Mar 9, 2021
  • The dollar hit a 3-month high while the U.S. 10-year Treasury yield traded close to a 13-month high
  • Spot gold price dropped 0.9% to $1,676.91 per ounce to hit the lowest mark since June 8
  • Analysts see a potential drop to the $1,650 area, where strong support is located

Gold prices slipped nearly 1% on Monday to the lowest point in nine months as the U.S. dollar and treasury yields continued to gain momentum and encouraged investors to offload the yellow metal. 

Fundamental analysis: Rising yields and higher dollar causing problems for gold

The U.S. dollar hit a 3-month high while the U.S. 10-year Treasury yield traded close to a 13-month high.

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“We have an economy that is recovering and inflation is materializing; that ultimately means that yields have room to move higher,” said Bart Melek, a chief commodity strategist at TD Securities. 

The newly-approved $1.9 trillion coronavirus relief package also failed to boost the yellow metal. The bullion is considered a safe-haven asset against inflation, rising bond yields in 2021 have threatened that status and as a result, the opportunity cost of holding gold increased. 

The FED’s failed attempt to respond to the recent rise in U.S. yields has also weighed on gold, according to analysts. 

Technical analysis: What are analysts saying?

Spot gold price dropped 0.9% to $1,676.91 per ounce to hit the lowest mark since June 8.  The bullion could stay in the $1,650 – $1,700 range in the near term, and a drop below $1,650 per ounce will likely give rise to additional selling pressure, said Edward Moya, senior market analyst at OANDA. 

Gold daily chart (TradingView)

On the other hand, TD Securities’ Melek also said that gold prices could continue to decline to $1,660. This is a strong support area, driven by the 100-WMA at $1,648 per ounce, and is likely to facilitate the entry of new investors looking to buy gold.  

On the upside, the main target is $1,750 per ounce, which is a former horizontal support. 

Summary

Gold prices fell 1% yesterday to a 9-month low as the dollar and U.S. treasury yields continued their rally and encouraged traders to dump the bullion. 

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