Wednesday (February 3) sub-market intraday, the dollar index slightly lower, now near the 91 mark. Spot gold and silver both rebounded after yesterday’s sell-off, with gold rebounding above $1,840 an ounce and silver trading near $27 an ounce. Analysts say volatility in precious metals, particularly silver, is likely to remain high for some time to come. On Wednesday night in Hong Kong, investors will get the so-called “mini-non-farm” U.S. ADP payrolls data, which is expected to have an impact on assets such as the dollar and gold.
Gold rebounded above $1,840
Gold prices fell sharply on Tuesday, dragged down by a slump in silver prices. Spot gold settled down $22.72, or 1.22 percent, at $1,837.88 an ounce, after hitting as low as $1,829.32. Gold rebounded modestly in Asian trading on Wednesday and is now trading around $1,841 an ounce.
CME Group on Monday raised the initial margin requirement for Comex 100 gold futures to $12,100 a lot from $11,000.
According to Economies.com, gold fell sharply on Tuesday after falling below $1,850.80 an ounce, confirming the revival of the bearish trend scenario.
Gold’s first target is now at $1,820.00 an ounce, and if it breaks that level, it could extend its slide to $1,800.00, Economies.com said. The condition for gold to extend its downward trend is to stay below $1,850.80 an ounce.
David Madden, market analyst at CMC Markets UK, said the move was not unusual at a time of extreme price volatility, with both silver and gold falling as a result and gold under pressure from the wider rise in risk appetite.
Gold prices rose again in Asia on Wednesday as the dollar weakened and silver rebounded. But the failure of Mr. Biden’s economic stimulus plan has prevented gold from gaining any more momentum.
On January 31, 10 Republican senators in the US Congress proposed a rescue package worth about $600bn, less than a third of what had been planned.
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.”
Mick Mulvaney, the former acting White House chief of staff and director of the White House Office of Budget Management, said Tuesday that President Joe Biden is a “very weak leader” who does not have the political capital to deliver a bipartisan new bailout bill.
Biden met with Republican senators at the White House as he prepared to push his $1.9 trillion bailout plan. The plan is not expected to get Republican support, which is about a third the size of Mr. Biden’s plan. A prolonged delay in the stimulus bill will dampen demand for gold.
President Joe Biden is warning of rising costs if the government continues to “do nothing” about a new $1.9 trillion bailout package.
Analysts say the overall environment remains favorable for gold due to several factors, including money printing, more stimulus, Fed easing and the risk of inflation.
Bullish sentiment in the gold market remains strong as turmoil and volatility dominate the financial markets, which are reacting to a growing number of organized retail investors, according to the latest weekly gold survey by Kitco News released on Friday (January 29).
Sixteen professional analysts responded to the survey last week. Nine analysts (56%) expect gold to rise this week; Meanwhile, three analysts (19%) said they are bearish on gold and four (25%) said they are bearish on the metal this week.
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.
The risk of a sharp plunge in silver volatility still exists
Silver fell sharply on Tuesday as CME Group raised margin requirements and investors locked in profits after surging to a near eight-year high in the previous session.
The U.S. Commodity Futures Trading Commission said Monday it is closely monitoring recent activity in the silver market. CME Group on Monday raised its maintenance margin on the COMEX 5000 silver issue by 17.9%. The margin for silver futures trades was raised to $16,500 per contract from $14,000 effective Feb. 2. This decision is based on a normal assessment of market volatility to ensure adequate collateral coverage. Posts on a Reddit forum called for traders to avoid the metal.
Silver has also rallied in recent days on the back of a community short squeeze, with spot silver hitting $30.03 an ounce on Monday, its highest level since February 2013. But Jim Wyckoff, senior analyst at Kitco.com, said the short squeeze appeared to have failed, at least for now.
Silver ended Tuesday at $26.67 an ounce, down $2.37, or 8.16 percent, after hitting as low as $26.26. Asian trading on Wednesday, spot silver rebounded to $27 / ounce near.
According to Economies.com, the price of silver fell sharply below $27.60 an ounce on Tuesday, suggesting that it may have to fall further for some time to come.
With silver closing below $27.60 an ounce on Tuesday, this opens the way for further declines, with the metal expected to test the $25.50 level in the near term, Economies.com said.
ForexLive wrote that “the silver hype is starting to die down as CME margin hikes and profit taking take place.” CME Group raised the margin requirement for silver futures, which can be said to be an important factor driving silver prices lower today. In addition, silver rose nearly 20 per cent in just three days — too much, too fast. $30 is a key target level, so there has also been some profit-taking.
HSBC warned of “buyer beware” of silver. The bank believes silver prices will continue to fluctuate and that newcomers to the market may get “bored” and start selling their positions, pushing prices lower. So buyer beware.
However, Michael Widmer, precious metals analyst at Bank of America, said in a note released Tuesday that he remains bullish on silver, which he sees rising to $35 an ounce and possibly further all-time highs around $50 an ounce.
Otavio Costa, portfolio manager at U.S. hedge fund Crescat Capital, pointed to a sharp correction of more than 8 percent in silver prices on Tuesday after Monday’s squeeze turned into strong demand for physical silver. But silver’s move is more complex than a squeeze like Game Station, and could be poised for another big rally.