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James Hyerczyk
Comex Gold

Gold futures fell more than 2.50% on Friday, coming within $3.00 of a 61.8% retracement of last year’s March to August rally. The market is also down 19% from its August 7, 2020 top at $2107.60. It may be cheap when compared to that level, but buyers are scarce because they lack an incentive to buy it.

On Friday, April Comex gold settled at $1728.80, down $46.50 or -2.62%.

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Time to go through the checklist again.

Last year, gold rallied because the global central banks banded together to push bond yields down to near zero percent, while flooding the financial markets with the liquidity needed to stabilize the global economy. In other words, they took a page out of the Ben Bernanke play book from 2008 – 2009.

At the same time, governments hit their economies with unprecedented fiscal stimulus. The combination of massive amounts of monetary and fiscal stimulus drove gold prices higher.

Central bank and government policymakers had no choice. The world was in a pandemic and no one knew how long it would last and how much damage it would inflict on the global economy.

So yes, at that time, gold was a safe-investment. But times have changed. This is not March 2020. We are approaching March 2021 and conditions are rapidly improving with the rollout of the coronavirus vaccines.

We saw it last week when the world’s most powerful central banker, Fed Chairman Jerome Powell couldn’t convince investors of the need for further monetary and fiscal stimulus. They saw the economy as rapidly improving and inflation rising quickly. They are convinced the Fed, and other central banks are going to have to abandon their loose monetary policy sooner than previously expected.

These investors showed confidence in their forecasts by driving bond yields sharply higher. And guess what, the U.S. Dollar suddenly became a more desirable investment, driving down foreign demand for dollar-denominated gold.

I’m sorry for being too specific in my analysis about why gold is going down. I try not to throw around general terms like “safe-haven” asset like the brokers and headline writers do when gold rallies. We’ve seen for several months that Treasuries, the Dollar and the Japanese Yen are the true safe-havens. Gold is just an investment that competes for capital just like bonds, stocks and now cryptocurrencies. It may go up when gold investors see value, but that may not be until it returns to pre-pandemic levels.

For a look at all of today’s economic events, check out our economic calendar.

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