Gold prices dropped by about 2% since yesterday, to record their lowest levels since March 9 at $1695. Gold prices have been suffering from selling pressure since August 2020, with the announcement of the first vaccines against the coronavirus. The increase in the number of vaccines distributed and the subsequent decline in the number of daily infections has driven a positive outlook in the global economy, pushing investors to abandon gold.
The drop in gold prices is a result of pressure from a strengthening US dollar after US 10-year bond yields rose to 1.77%, while US 5-year bond yields reached their highest level in 13 months, before US President Joe Biden unveiled $3 trillion economic recovery proposal which will focus on infrastructure, healthcare, and childcare.
Another factor in the price drop is the increase in the number of Americans who have received at least one dose of the vaccine, about 25% of the total population, and the United States plans to provide vaccinations to 90% of adults by May. The positive news surrounding the vaccines raised the risk appetite in the market pushing investors to drop the precious metal, which is considered a safe haven.
Traders will also be monitoring the US labour market statistics due for release next Friday amid forecasts that the economy will add more than 650K jobs in March, following a 4.3% growth during the fourth quarter of 2020.
Forecasts show that the US economy will record a growth of 1.5% during the first quarter of 2021, following the approval of the $1.9 trillion stimulus package earlier this month, which aims to support the economy by increasing employment and spending. The Federal Reserve confirmed in its last meeting that the US economy is on route to record its strongest growth in 40 years, thus it is possible that gold prices can drop further, which will affirm the US economic numbers during the coming period.
Following the break of the ascending channel on the 4-hour chart and the accelerated price drop to trade below $1700, an immediate support is expected at $1676 on the downside. Below that level, another support level awaits sellers at $1570.
In case the precious metal manages to stage a recovery, the initial resistance is located at $1,760. As long as the $1,700 resistance continues to hold, a bullish shift is unlikely to occur in the near-term. However, any breach beyond that line and a shift to the upside could be in play.