A changing investment landscape may present new opportunity for long-term gold investors.
Get in on Gold Before its Price Increases
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Investment market thinking through mid-February in 2021 has been dominated not so much by the COVID-19 pandemic, but rather by growing concern that efforts to revive the economy will also reignite inflation. Over the long term, this could be a major positive for gold.
But, in the near term it is weighing on the precious metal because both bond yields and the U.S. dollar have reversed their downward trends of 2020.
After yielding less than 1 percent for 11 months, the benchmark 10-year U.S. Treasury bond broke above 1 percent on January 6 and has continued to trend higher. By mid-February, the yield on the benchmark bond stood at 1.2 percent. Historically, this yield is puny. Nonetheless, the increase is driving a shift in capital flows back to the U.S. dollar. The U.S. Dollar Currency Index, a measure of the dollar against major foreign currencies, was up 1 percent for the year as of mid-February, compared to a 9 percent drop during the prior 52 weeks.
The combined rise in the dollar and in interest rates has pushed gold back near $1,800 an ounce. Technical support levels for gold are slightly lower, in the $1760-$1780 band. On February 4, gold bounced off an intra-day low of $1,784 an ounce. On November 30, 2020 gold dipped as low as $1,767 an ounce before climbing to the mid-$1,900s in January.
This support range is a good reference for long-term gold investors, rather than an invitation to attempt to profit from short-term moves in gold. Declines below $1,800 an ounce may present investors with attractive opportunities to add to gold positions. Longer term, if market expectations of higher inflation prove correct, gold stands to benefit.
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