Ultimate magazine theme for WordPress.

Edging Higher as the US Dollar Retreats Lower

0

GOLD, SILVER PRICE OUTLOOK:

  • Gold and silver prices extended higher, buoyed by a weaker US Dollar and stimulus hopes
  • Rising inflation expectations may cushion precious metal prices against higher yields
  • The world’s largest bullion ETF saw continuous outflow as investors turned to riskier assets

Gold Forecast

Gold Forecast

Recommended by Margaret Yang, CFA

Get Your Free Gold Forecast

Gold and Silver prices advanced for a third day against the backdrop of a weaker US Dollar. Markets awaited a fresh US$ 1.9 trillion US Covid-relief package to be approved by Congress. The US Dollar (DXY) index retreated to 90.74 from a two-month high of 91.55 as stimulus hopes were built against the backdrop of a much weaker-than-expected non-farm payrolls report. Only 49k positions were added in January, falling sharply below market expectations of a 105k increase. Tepid job market sentiment called for more fiscal support and may refrain the Fed from considering tapering any time soon.

The Democrat-led Senate is working towards approving the US$1.9 trillion stimulusbill, which aims to revitalize consumer spending, strengthen vaccine delivery and foster a faster recovery from the pandemic. House Democrats proposed to broaden the eligibility of stimulus payments for middle-income households. Individuals earning up to 75k and couples earning 150k annually may be able to receive US$ 1,400 cheque payments.

Further weakness in the Greenback may continue to support precious metal prices, which tend to be inversely correlated to the US Dollar. Gold and silver prices exhibited a negative relationship with the DXY US Dollar index, showing correlation coefficients of -0.79 and -0.92 respectively over the past 12 months.

Gold vs. DXY US Dollar Index – 12 Months

Gold, Silver Price Forecast: Edging Higher as the US Dollar Retreats Lower

Source: Bloomberg, DailyFX

While inflation expectations and gold prices appear to have diverged over the past few months (chart below), a rising inflation outlook may still provide longer-term support to precious metals. That is because they are perceived as inflation hedges and a store of value. Renewed stimulus hopes sent the Federal Reserve Bank of St. Louis 5-year forward inflation expectation to a two-and-half year high of 2.14%. It could continue to rise should the economy bounce back strongly in the first quarter. Besides, relative underperformance of gold prices this year could be attributed to rising longer-dated US Treasury yields and an exuberant stock market rally. These have been making the yellow metal less appealing compared to riskier assets.

Gold vs. Fed 5-year Inflation Outlook – 12 Months

Gold, Silver Price Forecast: Edging Higher as the US Dollar Retreats Lower

Source: Bloomberg, DailyFX

The world’s largest gold ETF – SPDR Gold Trust (GLD) – saw continuous net capital outflow over the past few weeks. The number of GLD shares outstanding deceased to 396.6 million for the week ending February 5th 2021 from a recent high of 407.1 million observed on January 4th, marking a 10.5 million decline. Gold prices and the number of outstanding GLD shares have exhibited a strong positive correlation of 0.92 over the past 12 months (chart below).

Gold Price vs. GLD ETF Shares Outstanding – 12 Months

Gold, Silver Price Forecast: Edging Higher as the US Dollar Retreats Lower

Source: Bloomberg, DailyFX

Technically, gold prices returned to ‘range-bound’ trading conditions after briefly dipping below it, with US$ 1,810 and US$ 1,870 serving as immediate support and resistance levels respectively (chart below). The overall trend remains bearish-biased as suggested by downward-sloped moving average lines. The MACD indicator is about to form a bullish crossover but overall trend remains below the centerline, reflecting weak upward momentum.

Gold PriceDaily Chart

Gold, Silver Price Forecast: Edging Higher as the US Dollar Retreats Lower

Silverprices regained strength after falling sharply from last week’s peak of US$ 30.00. The overall trend appears to be bullish-biased, as suggested by the formation of higher highs and higher lows recently. Immediate resistance levels can be found at US$ 27.80 (61.8% Fibonacci extension) and US$ 28.67 (76.4% Fibonacci extension). A pullback from here may lead to a test of US$ 27.07 (50% Fibonacci extension) for support.

Silver PriceDaily Chart

Gold, Silver Price Forecast: Edging Higher as the US Dollar Retreats Lower



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -7% 23% -3%
Weekly 5% 20% 7%

IG Client Sentiment indicates that retail gold traders are leaning heavily towards the long side, with 84% of positions net long, while 16% are net short. Traders have increased short positions substantially (+20%) while reducing long exposure overnight (-5%). Compared to a week ago, traders have increased both short (+14%) and long (+7%) bets.

{{GUIDE|BUILDING_CONFIDENCE_IN_TRADING }}

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter



Source link

Leave A Reply

Your email address will not be published.