Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Gold Above $1,800. What’s Next?

By Sunshine Profits (Arkadiusz Sieron)CommoditiesMay 11, 2021 02:46PM ET
www.investing.com/analysis/gold-above-1800-whats-next-200579370
Gold Above $1,800. What’s Next?
By Sunshine Profits (Arkadiusz Sieron)   |  May 11, 2021 02:46PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Gold jumped above $1,800, and it’s the disappointing jobs data that added fuel to the fire.

The gold market is a funny place. On Thursday (May 6), I complained that the yellow metal couldn’t surpass $1,800:

The price of gold has been trading sideways recently as it couldn’t break out of the $1,700-$1,800 price range. This inability can be frustrating, but the inflationary pressure could help the yellow metal to free itself from the shackles.

And voilà, just later that day, the price of gold finally jumped above $1,800, as the chart below shows. Hey, maybe I have to complain about gold more often?

Gold Prices In 2021.
Gold Prices In 2021.

But jokes aside. The move is a big deal, as gold has finally broken above the key resistance level. What’s important here is that the breakthrough wasn’t caused by some negative geopolitical or economic shock, but rather by fundamental and sentiment factors.

So, what happened? First, there is a weakness in the U.S. dollar. With global economic recovery progressing, the safe-haven appeal of the greenback is simply vanishing. Another issue here is – and I pointed this out in the Fundamental Gold Report dedicated to the latest ECB’s meeting – that the pandemic in the Eurozone has reached its peak. So, the worst is already behind the euro area, and it can catch up with the U.S. now, supporting the euro and gold against the dollar.

Second, bond yields have been heading lower recently. As one can see in the chart below, the real interest rates have corrected significantly since their peak in March. In early May, the 10-year TIPS yields slid further, returning to almost -0.90%.

Gold And 10-Year TIPS Yields.
Gold And 10-Year TIPS Yields.

What is noteworthy here, the real interest rates declined more than the nominal interest rates. It resulted from the increase in the expected inflation. Indeed, as the chart below shows, the 10-year breakeven inflation rate jumped in early May. As a reminder, I wrote on Thursday that “the inflationary pressure could help the yellow metal to free itself from the shackles” and this is exactly what happened.

10-Year Break-Even Inflation Rate.
10-Year Break-Even Inflation Rate.

Implications For Gold

What does gold’s jump above $1,800 imply for its future? Well, the crossing of an important obstacle is always a positive development. The decline in the interest rates, coupled with the weakness in the US dollar, means that the markets are convinced that the Fed would remain very dovish, even despite the rising inflation .

Other positive news for the gold market is April’s nonfarm payrolls that came in below the forecasts. The US economy added only 266,000 jobs last month (see the chart below), although many analysts and even the FOMC members expected a nearly 1 million increase in employment. Such a disappointment made traders slash the bets on the pace of the Fed’s monetary tightening. A softer expected path of the federal funds rate is a fundamentally positive factor for gold.

Nonfarm Payrolls And Unemployment Rate.
Nonfarm Payrolls And Unemployment Rate.

In other words, the weak employment report relieves a lot of the pressure put on the Fed to tighten its monetary policy. So, the U.S. central bank will continue to provide monetary support, despite all the progress observed in the economy, and that easy stance will stay with us for longer than previously expected. In that sense, April’s disappointing jobs data may be a game-changer for gold, and it could add fuel to the recent rally that started on Thursday.

Of course, one weak employment number doesn’t erase the impressive economic recovery. Moreover, I would like to see that gold hold the recent gains through the coming days before organizing a party for the gold bulls. However, it seems that I was right in saying that the second quarter would be much better than the first one. Gold is indeed gaining momentum! And, what’s really important, the yellow metal started to rise amid a strong economic recovery. It implies that we can be observing important, bullish shifts in the market sentiment towards gold.

Gold Above $1,800. What’s Next?
 

Related Articles

Gold Above $1,800. What’s Next?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (9)
Jan Skilbrei
Jan Skilbrei May 12, 2021 2:09AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
yields no 1, then inflation. The combined is the one to follow, its extremely well known. So if inflation going up, yields stable (for a while), gold is up medium term
Murali Brahmandam
Murali Brahmandam May 11, 2021 9:33PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You can come up with your own theories or jokes about gold
Murali Brahmandam
Murali Brahmandam May 11, 2021 9:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
$640 will take several years; $1965 could take days or weeks if it does. Going above$1965 is IMPOSSIBLE. Stock investors will keep pushing gold lower and lower
Murali Brahmandam
Murali Brahmandam May 11, 2021 9:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Gold is going to $640; that is the long term target. In the short term, gold may hit $1965 at best. how you want to play it, you decide
peter neal
peter neal May 11, 2021 8:56PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The price of gold has been riding for thousand of years and will do do. I wouldn't worry about 1800.
Kevin McCarthy
Kevin McCarthy May 11, 2021 4:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the real factor missing is how the jobs report underlines how bad our economy is. the numbers people are focusing on aren't painting an accurate picture. trade deficit of 90b, 11m jobs still missing, you comparisons aren't trustworthy. still a long way from recovery. we're still stuck in the evaluation of how broke is it.
Kevin McCarthy
Kevin McCarthy May 11, 2021 4:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
y o y comparisons*
Pilot TwoFive
Pilot TwoFive May 11, 2021 4:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You mean paying people to sit on their asses isn't working?  Who would have thought?
Kevin McCarthy
Kevin McCarthy May 11, 2021 4:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Pilot TwoFive  it's not just that, also we are sending our dollars to other countries for goods and losing who knows how much to other countries through crypto mining. it's devastating.
Aniebiet Akang
Aniebiet Akang May 11, 2021 3:48PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Gold is already bearish.
Shahzad Bajwa
Shahzad Bajwa May 11, 2021 3:48PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
yes..
preeti gautam
preeti May 11, 2021 3:25PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
hello
Waseem Sjad Waseemsjad
Waseem Sjad Waseemsjad May 11, 2021 3:25PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
hiii
Francisco Javier Lazarini
Javisman May 11, 2021 2:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
whats next? a big drop, it's called"manipulation"
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email