Gold week review: dollar strength against gold long! Silver’s surge steals the show! Next week’s big non-farm report is coming!

Spot gold under pressure this week, the strong dollar has become the main factor of gold price decline. The Fed left policy unchanged this week and did not signal more easing, which was positive for the dollar. On the other hand, worries that the U.S. stimulus package may not be as big as expected also weighed on spot gold. Next week, investors are bracing for major economic data such as the U.S. nonfarm report, which is expected to spark market activity.

The strong dollar has taken some of gold’s appeal away, with spot bullion ending the week down $7.96, or 0.43 percent. Gold ended the week at $1,877.50 an ounce, after hitting an intraday high of $1,875.66.

Gold has also fallen this month, dragged down by a stronger dollar and higher US Treasury yields.

Biden’s stimulus plan faces hurdles

President Joe Biden’s $1.9 trillion rescue plan faces hurdles, with Republicans voicing concerns about the cost and lobbying for a smaller plan for vaccine distribution.

Biden’s $1.9 trillion stimulus plan, which includes $1,400 in stimulus checks, has drawn criticism from a bipartisan group of lawmakers for its high cost.

Mr. Biden has made the aid plan his top priority since taking office. Under the weight of the epidemic, he said, the nation’s health care system and economy need an immediate boost.

The president’s top economic adviser said Tuesday that the Biden administration may be willing to adjust the threshold for disbursement of the next round of anti-pandemic stimulus checks to ensure the benefits go to families most in need of emergency funds.

“If they reach a deal, there may be a watered down version of it to get it through Congress, so that will also weigh on the gold market,” Saxo Bank analyst Ole Hansen said.

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.”

The House of Representatives will move forward next week on an agenda that would allow Democrats to pass a new bailout bill without Republican support, House Speaker Nancy Pelosi said Thursday.

Pelosi said the House will pass a budget resolution, the first step toward passing legislation. That process would allow Senate Democrats to pass an aid measure without Republican votes. “By the end of this week we will have a budget resolution,” she predicted.

Dollar strength, Fed decision not good news for gold bulls

The dollar index ended the week at 90.53, up 0.34% for the week. The dollar recovered some of its losses as risk sentiment soured and liquidity shortages triggered by the sell-off in US stocks. The dollar has also benefited from a range of negative sentiment, including talk of a stock market bubble and weak US durable goods orders.

The dollar has rebounded from a three-year low hit earlier this month and its recent decline has been seen as going too far, too fast.

Market analyst Joel Frank noted that gold’s decline was driven by a stronger dollar. The dollar recovered amid a general deterioration in risk appetite.

Frank said the stock market selloff is having a general impact on other asset classes. Bond yields fell and commodity prices such as crude oil and industrial metals fell. In addition, the ECB’s comments on rate cuts also triggered a weaker euro and a stronger dollar, which continued to put pressure on the precious metals market.

Credit Agricole Research said it was bullish on the dollar in February, which it believes will prove to be an important strategic inflection point for the greenback. February is expected to see the first signs of economic recovery in the US, with new stimulus measures and better control of the epidemic taking effect, while the outlook for US inflation continues to improve. The combination of the historically strong dollar in February and the broad decline in the dollar in January this year leads our seasonal analysis to further suggest that the dollar will average higher in February.

Real U.S. gross domestic product will grow at a negative 3.5 percent pace in 2020, the first negative reading since 2009 and the lowest since 1946, Commerce Department data showed on Thursday. The preliminary estimate of GDP growth for the fourth quarter of 2020 was 4% at an annualized rate, unchanged from the previous estimate of 33.4%.

It was the first negative reading since the economy shrank 2.5 percent in 2009 and the worst annual setback since the economy shrank 11.6 percent in 1946, the Associated Press said.

January’s non-farm payrolls data, due on Friday, is the next major driver of the economy, while investors are also focused on fiscal stimulus. The U.S. House and Senate will act next week on President Joe Biden’s fiscal stimulus plan to provide aid to Americans and businesses affected by the outbreak, top Democrats said on Thursday.

Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, said part of the rebound in the dollar could be a result of a large squeeze on short positions in the greenback, which the market is a little vulnerable to.

Technically, a break above 91.01 on the DX will open the door for a rally to 91.96(100-dma and 92.46(2.36% Fib retracement on 2020-2021 decline). On the downside, initial support stands at 90.21(21-dma), then 89.20 and 88.94.

Peter Spina, president and chief executive officer of GoldSeek.com, said gold was trading against strong U.S. Treasury yields and the dollar.

Commerzbank analyst Daniel Briesemann said the Fed’s meeting on Wednesday had no positive impact on gold prices as the dollar strengthened before and after the meeting as other concerns in financial markets made it seen as a safe-haven currency, which weighed on gold prices.

The Fed said Wednesday after a two-day policy meeting that it would keep its benchmark short-term borrowing rate near zero and keep its asset purchase program, in which the central bank buys at least $120 billion a month, in line with market expectations.

“The pace of recovery in economic activity and employment has slowed in recent months, with weakness concentrated in the sectors most affected by the outbreak,” the Fed wrote in its post-meeting statement. The statement reiterated that the new pandemic “is causing enormous human and economic hardship in the United States and around the world.” Beyond that, the Fed’s policy statement remained largely unchanged.

Tai Wong, head of metals derivatives trading at BMO Capital Markets, said: “The market is looking for a more accommodative signal from the Fed and it’s not getting it, so gold can’t rally.”

Silver is surging ahead of gold

Compared to gold’s lackluster performance this week, silver is doing pretty well. Retail investors, organized through social media, have created strong momentum for silver prices in the past week.

Spot silver rose $1.50, or 5.89 percent, for the week, its best weekly performance in nearly a month and a half.

“All eyes will be on January’s employment report, which saw a 1.4m decline in December,” said ING economists. “We expect a modest uptick in the year as high-frequency spending data got the year off to a good start, but February should be better now that California’s homekeeping order has been lifted.”

Other data to watch include the Institute for Supply Management’s manufacturing purchasing managers’ index on Monday, ADP employment and the ISM non-manufacturing purchasing managers’ index on Wednesday, and factory orders and initial jobless claims on Thursday.

Investors will also continue to watch to see when the battle between retail investors and institutions ends. If the frenzy continues into next week, gold could get a shot at $1,900, especially if silver continues to outperform the market, analysts said.

Beyond that, markets will be closely watching the progress of any stimulus measures next week. ING added that “the package is likely to be diluted in order to gain sufficient support, and may need to be split in two, delaying more contentious aspects, and included in the budget adjustment process, which requires only a simple majority to pass.”

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