International spot gold rose moderately on Monday, hitting a high of $1,871.81 an ounce before returning to below $1,870. Silver rallied sharply on the back of retail enthusiasm, which also helped gold ride the wave, but the overall rally remained limited as two major risks remain. On the one hand, despite the epidemic, demand for the dollar remains strong, which puts pressure on gold. On the other hand, the inability of large inflation-boosting fiscal stimulus packages to help bullion bulls open up more room for gains. As a result, gold prices are likely to remain range-bound.
As the Reddit-owned forum’s “retail action” continues to grow, they claim silver has long been held down by short prices. Silver jumped nearly 12 percent on the day to its highest level in eight years. I-Shares Silver Trust, the world’s largest Silver ETF, reportedly received a record $1bn in net inflows. But the fact that the precious metals market is so different from stocks, and trading volumes and counterparties are so different, that many Wall Street analysts don’t expect retail action to have much of an impact, though the presence of panic could provide a modest boost to silver in the short term.
On Sunday, 10 Republican senators proposed a $600 billion stimulus plan to replace President Joe Biden’s $1.9 trillion plan. The positive market reaction, albeit at a much smaller scale, is at least proof that the stimulus bill is making progress. Market risk sentiment has been boosted, the stock market led by the risk assets significantly higher. But if the stimulus is scaled back significantly, the boost to inflation risks will be limited, limiting gold’s gains.
In addition to the stimulus news, Biden’s speech will also be closely watched. According to US media reports, Biden is scheduled to deliver a major speech outlining the country’s foreign policy on February 1. It will be Biden’s first foreign policy speech in office. Biden will deliver a speech on February 1 laying out his vision for foreign policy aimed at “restoring America’s standing in the world,” according to a senior administration official, NBC News reported on January 30.
At the same time, gold is limited by the liquidity needs of the dollar. Until the epidemic improves significantly, investor demand for dollars will remain strong, increasing the liquidity of capital. That’s not good for gold in the short term, but in the longer term, rising demand for a safe haven could be good for gold if the severity of the epidemic persists for too long.
On the risk front, markets are also focused on the military coup unfolding in Myanmar. Myanmar leader Aung San Suu Kyi and other senior officials of the ruling National League for Democracy (NLD) were detained in an early morning raid, party spokesman Myo Nyo said on Monday. The move comes after days of escalating tensions between the government and the military, which have raised fears of a coup, with the military alleging fraudulent elections. The White House has expressed concern about the situation in Burma. The White House said it would “take action” against those responsible if the Burmese leader was not released.
Technically, on the upside, initial resistance is at $1,870, the 50% Fibonacci retracement of the December rally and the convergence of the 20-day moving average. Above this level, the 100-day moving average at $1880 would be the next upside target, followed by $1890 (Fibonacci 38.2% retracement).
On the downside, initial support stands at $1851 (200-dma), then $1845 (Fibonacci 61.8% retracement) and $1831 (Jan. 27 low).
In addition, according to the monitoring data of the world’s eight major gold ETFs from the gold information website www.24K99.com, as of January 29, 2021, the total holdings of the world’s eight major gold ETFs were 1,989.816 tons, a decrease of 5.406 tons compared with the previous trading day.
Bob Haberkorn, senior market strategist at RJO Futures, said: “The size of the $1.9 trillion (U.S. stimulus package) is quite large and I don’t think President Biden will have the support to pass it. That’s another reason why gold hasn’t tried to move back above $1,900.”
Commodity analyst Eddie Van Der Walt said the gold/silver ratio had fallen to multi-year lows, but that was unsustainable. Monday’s social media-fueled buying spree will find that trying to push silver around for a while will be a different challenge than pushing a stock around.
That interest in silver is spilling over into gold, which could help prices rise to $1,900 or more this week, analysts say. Sean Lusk, co-head of Walsh Trading, said if gold could rise to $1,895, it could further challenge $1,950 in the short term.