Gold steady rise! US GDP confirmed to slow down difficult to set off a new crown epidemic risk aversion sentiment remains
2021-01-29


FX168 Financial News (Hong Kong) - Gold prices have fluctuated since the inauguration of US President Joe Biden, but have since steadied their gains to hover around the $1,845 range. With a new pandemic, vaccine distribution and the $1.9 trillion U.S. fiscal stimulus still in the balance, the gold market received a driver of U.S. GDP data, but it was initially in line with expectations, confirming a slowdown in U.S. economic activity at the end of the year that is unlikely to cause volatility in gold prices. Risk aversion remains in place and continued to support gold's rally towards the end of the week.
 
Gold rose 0.05 percent to $1, 844.50 as of 8:10 a.m. in Hong Kong.
 
Fundamentals: US GDP in line with expectations, German inflation data not helping
 
Investors are focused on gold fundamentals, but the current moves seem to have little to do with them. In other words, gold did not react to the release of US GDP data. Preliminary GDP in the fourth quarter was in line with expectations, but confirmed a continued slowdown in US economic activity through 2021, while weekly initial claims for jobless benefits were better than expected, but initial claims are still at historically high levels since September to November last year.
 
Gold prices also did not rise as quickly as expected on higher German inflation. Headline inflation jumped to 1.0 per cent from -0.3 per cent in December, beating expectations of 0.7 per cent. Meanwhile, Germany's core inflation measure, HICP, surprised markets by rising unexpectedly to 1.4 per cent from 0.6 per cent in December, against expectations of a fall to 0.3 per cent. The main reason for the surge is the reversal of the VAT cut in 2020.
 
ING said the inflation figures were just the beginning of a clear period for headline inflation in Germany and that the image of higher energy prices than last year in the coming months would be fully apparent. However, before markets get too worried about a wave of inflation, the bank noted: "The economy will not return to pre-pandemic levels until early 2022, unemployment and debt insolvency are bound to rise, and further appreciation of the euro will also deflate, limiting any inflationary pressures."
 
Just as higher inflation data won't help gold prices, the U.S. government bond market suggests higher U.S. inflation expectations won't have much impact on gold. The 10-year Treasury break-even jumped 6 basis points to above 2.11 per cent, while the 30-year Treasury break-even rose more sharply by 7 basis points to above 2.11 per cent. Gold is seen as the ultimate hedge against inflation, so higher inflation expectations should provide some support.
 
TD Securities says its global macro PCA model suggests gold is getting an increasing discount to other markets linked to the inflation theme. "We believe the discount in gold is due to its trading regime and the fact that gold is now traded more as a safe haven asset than an inflation hedge, indicating a temporary slowdown in investment flows," they said.
 
Fears of lower real interest rates have been the main driver of gold's performance over the past year, and analysts say the fall in Treasury yields is now more likely to push down real interest rates than inflation. But it is worth noting that the dollar has the intention of rising. On a weekly basis, the US 10-year Treasury yield broke through major resistance, leaving the DXY unscathed.
 
Fundamental analysis: market psychology play curious retail traders into the eye
 
Gold prices are concentrated in the current curious state of market psychology, with retail traders focusing heavily on the price of gold and trying to enrich themselves essentially by forcing hedge funds to short equities by making it more expensive for them to short. As retail brokers grapple with volatility, the market is turning its attention to other assets it can tap. One of the most popular posts by retail traders, which urged them to force silver to sell short, sparked a similar rally in gold. Perhaps investors are realizing that if these forces do not allow for short squeeze on small stocks, they most certainly do not allow for short squeeze in precious metals, and this will encourage profit-taking in gold.
 
Silver also followed suit as speculation in retail interest increased. After briefly rising, silver was down 0.12 percent at $26.47 an ounce by 8:14 a.m. in Hong Kong.