Analysts Cast Doubt on the Gold Mini-Rally, a Dead Cat Bounce?
Gold's price action is choppy. Analysts are doubtful on whether the yellow metal's shine will glitter this week. While gold prices recovered slightly on Joe Biden's inauguration day, it quickly stuttered, falling on Friday against a resurgent USD. As analysts are confident in the greenback's prospects, investors are also loosening their purse strings in a risk-off. Bond yields are back to green, and gold looks likely to extend its losses and may crumble below critical supports as traders tap profits.
Gold's price action mirrors that of last November. Then, following a temporary recovery of gold's prices, the asset posted sharp losses in the better part of the month before bouncing off to spot levels in December. Still, prices are choppy and mostly in range mode. However, considering the economy's state and the resumption of normalcy for hungry investors, fundamentals areskewed against the yellow metal. Proponents may point to inflation, a variable that often feeds on bulls, and could be a tail risk in 2021 but a net positive for gold. This, nonetheless, warrants a deeper examination now that analysts say inflation is dead and economies are scrambling, trying to fight off deflation through aggressive tactics like helicopter money, bond purchasing, and QE. Presently, central banks are dovish, confident that inflation, after all, may not rise above two percent in 2021.
Impact on gold:
Bearish. A recovering global economy, dovish central bankers, rising bond yields, and the coronavirus vaccine distribution and administration all combine to support the USD at the expense of gold. Accordingly, its price may slide in 2021.
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