There seems to be a strong correction in the gold market. It appeared after previous spectacular price increases, which seemed unsustainable in the long run. It was often pointed out that the price of gold rose too much and in too short time. Similar behavior could be seen in the silver market, where the time of profit-taking could also come.
As early as the beginning of the week, gold tried to break the record, but it failed. The price started to fall after the unsuccessful attempt to break the record on Monday, along with a decreasing turnover in the futures market at historic high. As a result, the correction now appears to be about 10 percent, as the price fell from almost $2,100 per ounce to below $1900. There hasn't been such a big drop in this market for 7 years.
Decreases in the price of the metal began to be accompanied by (or was a pretext for) an increase in the yields of American treasury bonds, which followed the auctions conducted by the US Treasury Department this week. Gold usually may become more expensive when yields fall, while when yields rise, gold may become cheaper.
The combination of better-than-expected data, including PPI from the US, and information from Russia on the development of a coronavirus vaccine could also affect debt yields, Bloomberg said. Nevertheless, in the long run, it seems that gold or silver should return to an upward trend. The Fed does not even take into account the idea of raising interest rates, which in turn may limit the rise of bond yields and thus the fall of gold prices.
Today, we have seen greater changes in the currency market, in line with what investors in the currency options market valued yesterday, on the New Zealand dollar. The NZD fell to all major currencies after the central bank increased its asset purchase program to 100 billion NZD, and Adrian Orr, Governor of the Reserve Bank of New Zealand, said that decision-makers are actively seeking to lower bond yields. Thus, the road to negative interest rates in NZ is still open. According to traders quoted by Bloomberg, NZD was already under pressure from sellers after Auckland introduced a third level of lockdown due to new cases of coronavirus.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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