Death Cross Forming in Gold Amid Rising Bond Yields

Gold began the year with lofty expectations on the back of a record high and its biggest annual gain in a decade. Instead, the precious metal is off to its worst start in 30 years. Spot prices touched a seven-month low on Friday before erasing losses as the dollar moved lower, though bullion is already down more than 6% this year. The metal, which surged last year on pandemic-induced haven buying, low interest rates and stimulus spending, is now 2021’s worst performer.

Price of gold in India slid below the Rs 46,000 per 10gm mark for the first time in about eight months. This was the result of the US dollar becoming stronger due to rising bond yields in the world’s biggest economy, leading to a selloff in the yellow metal globally. The rise in bond interest rates has been spurred by the optimistic outlook in the market, amid positive news on COVID-19 vaccine rollouts and the $1.9 trillion US stimulus package. Rising bond yields make non-yielding assets such as gold a less appealing investment.

The mandatory Securities and Exchange Commission’s (SEC) 13F filing of BlackRock, the world’s largest asset manager, revealed that it is exiting gold and buying silver. The filing showed that in the fourth quarter of 2020 BlackRock sold 2.7 million SPDR Gold Shares (GLD) and bought 1.18 million shares of iShares Silver Trust (SLV).

Looking at the COMEX Gold daily chart we can see that a bearish “Death Cross” pattern (50 period moving average crossing below the 200 period moving average) is forming and that prices are falling. The next key level of potential support lies at the prior low of $1763, if that is broken, we can see free fall to next support is $1680.

A death cross occurs when the 50-day moving average, which many chart watchers use as a short-term trend tracker, crosses below the 200-DMA, which is widely viewed as a dividing line between longer-term uptrends and downtrends. The idea is that the cross marks the spot that a shorter-term selloff can be defined as a longer-term downtrend.

Looking back to 1980, counting 25 crosses and only one false signal, this delivered 15 wins and 10 losses for a net average gain of 0.4% over a holding period of 7.32 days, which is annualized to 14%. But other adjustments, including taking the slope of the lines and their second derivatives into account, may further improve results.

That was all about international gold prices, but looking at domestic gold, prices have broken important support of Rs 46000/10 gm and are expected to break down towards Rs 44000-45000/ 10gm.

Gold bulls see the Biden administration’s $1.9 billion coronavirus relief package, as possible support for bullion, even if the Democratic leader’s proposal comes in at a fraction of his proposal as he compromises with Republicans. The extra stimulus to economic growth, combined with the Federal Reserve’s loose monetary policy, may spur inflation eventually. Experts also have pointed to coronavirus vaccine efforts as also spurring the economic rebound and supporting gold’s outlook

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