Is the Gold Bull Market Over?

March 31, 2021 at 09:56 AM

To answer that question, it’s looking it is. According to the Bank of America (BoA), there are three main reasons for the decreasing value of gold: the weakening of physical demand, a lackluster jewelry market, and a lack of investor interest.

The central banks’ demand decreased by nearly 60 percent in 2020, according to the World Gold Council (WGC). In the fourth quarter of 2020 alone, central banks bought a net of 44.8 tons of gold from about 140.7 tons a year before that.

Additionally, the jewelry market has been hit hard by the pandemic. Last year, the total annual demand for gold pieces was 34 percent less than it was in 2019, which marks a new annual minimum in history according to observations by the WGC.

The current market sentiment also favors lower gold prices. Traders are pricing in three rate hikes, starting in late 2022, as inflation expectations have risen sharply. The Federal Reserve (Fed) will need to tighten monetary policy sooner than previously thought, or the central bank risks inflation getting out of control. 

Rising US yields are usually positive for the USD, and the greenback has been rallying recently, hitting multi-month highs against most of its major peers. 

Vaccinations are ramping up, and the return to normalcy might be expected later this year. Another bearish sign for gold is that investors would rather hold stocks of companies with rising revenues rather than gold which has no dividends or no interest. 

Technically speaking, the last bullish support for gold is in the 1,680 to 1,670 USD area, where the uptrend line from 2019 and 2020 lows is converged with the strong horizontal demand zone of Summer 2020 lows. 

Should the price decline below that support zone, it might be the last nail in the coffin for gold, with a possible return to 1,500 USD. 

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