- Gold is trading unchanged on the day despite higher real returns, lower inflation expectations and a stronger USD.
- Some analysts argue that Bitcoin’s roughly 20% drop could also be helping the precious metal.
He oro (XAU / USD) reached its lowest levels in more than a month during the Asian session on Monday, falling below the $ 1,820 level for the first time since December 2, 2020. This level (December 7, 9, 11 and 14 lows) has proven to be formidable. The 200-day moving average at $ 1,836 also helps. Spot gold has since rallied towards the $ 1,850 level and now it remains virtually unchanged on the day.
Gold unchanged despite fundamental headwinds
Gold is trading unchanged on the day despite a much stronger US dollar on the day, which would normally be negative for gold, denominated in dollars. Furthermore, gold has managed to recover from lows despite a continued rally in real U.S. bond yields and a drop in inflation expectations.
Both factors are usually negative for gold. The precious metal is typically seen as a hedge against inflation (so when inflation expectations fall this is normally bad for gold) and when real returns rise this generally reduces the incentive to hold gold over fixed income (and is negative for gold).
Other factors investors are citing as to why the XAU / USD is rebounding from lows may be the taking profit on bearish positions after last Friday’s big dip and crash in Bitcoin, which paints the precious metal in a more favorable way.
On the latter, the bitcoin experienced a staggering rally over the past week to over $ 40,000 at one point, but drops about 20% on Monday. The recent upward push has been the notion that financial institutions will increasingly adopt cryptocurrencies in their portfolios and that companies will add Bitcoin to their balance sheets. Cryptocurrencies like Bitcoin also have significant advantages over fiat currencies, as does gold, in that no authority controls the supply of the currency (or commodities) and some see them as an alternative way to protect against inflation.
Thus, it has been argued that cryptocurrencies like Bitcoin have diverted demand for “inflation hedging” that would normally have gone to gold and the recent surge in cryptocurrency prices had actually been weighing on gold. So, with the same argument, the fall of Bitcoin on Monday could help gold.
Technical levels of gold
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