· Gold Price Forecast: XAU/USD rebounds on US stimulus progress but not out of the woods yet
Gold (XAU/USD) is attempting a minor bounce after falling over 1% to eleven-day lows at $1830 on Tuesday. The yellow metal slumped as the US dollar rallied hard on the macroeconomic divergence between the US and Euro area economies. The relative strength of the US economic recovery amid the coronavirus crisis drove the greenback broadly. The social media-driven retail-trade frenzy fizzled and weighed heavily on silver prices alongside gold. Markets also favored the US currency amid ongoing talks on fiscal stimulus.
Wednesday’s pullback in gold can be mainly attributed to the progress on a likely US fiscal stimulus deal. The Senate voted 50 to 49 in a straight party-line decision in order to push through a $1.9 trillion aid package proposed by President Joe Biden. However, the covid vaccine-driven optimism could cap the recovery attempts in gold. Also, if the US dollar resumes the recent advance, gold could once again feel the pull of gravity, as the technical picture also suggests limited upside.
The daily chart shows that a bear cross is in the making for gold, suggesting that the sellers could remain hopeful despite the latest bounce.
The bearish crossover will get confirmed once the 21-daily moving average (DMA) pierces the 200-DMA from above. Also, adding credence to the downside bias, the Relative Strength Index (RSI) continues to hold below the midline.
Therefore, a retest of Tuesday’s low at $1830 cannot be ruled, below which the January 13 low of $1803 would come into play. Further south, the November 30 high at $1790 could offer some support to the XAU bulls.
Wednesday’s fall prompted gold to breach the critical 200-daily moving average (DMA) at $1850, with the path of least resistance seemingly downside after closing the day below the 200-DMA support.
On the flip side, the buyers need to find acceptance above the critical $1854, where the 21 and 200-DMA look to coincide. The next upside target awaits at the 50-DMA of $1858. The path of least resistance, therefore, appears to the downside.
· Gold Forecast: Stimulus, Treasury Yield and Pandemic in Focus*
Gold prices edged slightly higher on Wednesday as silver prices attempted to recover some lost ground after falling over 8% on Tuesday. Enthusiasm surrounding the retail trader frenzy led to heightened volatility in silver earlier this week, but the spillover effect on other precious metals wasn’t particularly obvious. While silver prices swung as much as 20% from January 28th to February 1st, gold prices moved only 1.7% during the same period. Speculative activity on silver appeared to have cooled after the CME raised margin requirements, allowing a return of market focus on the fiscal stimulus and pandemic situations.
US lawmakers are working towards approving President Joe Biden’s US$ 1.9 trillion Covid relief aid without Republican support, as the US$ 600 billion proposal by the Republicans was deemed “way too small”. The Democrat-led Senate started a reconciliation process, which would allow them to pass Biden’s stimulus package with a simple majority and avoid a filibuster that requires at least 10 Republican votes to support the bill. Renewed stimulus hopes led longer-dated US Treasury yields to climb as expectations for future demand, output and inflation outlook rose. The 10-year rate edged up by 9 bps from a week ago to 1.109%. Higher yields may exert downward pressure over precious metal prices, which are non-yielding.
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Reflation hopes may encourage investors to park their money in equities in search of yields and growth, resulting in the relative underperformance of precious metals compared to stocks. Gold prices have lagged behind the S&P 500 stock market benchmark since August 2020, and this gap may widen if the economy rebounds at a faster-than-expected pace with the rollout of Covid vaccines and more fiscal aid.
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Technically, gold prices have entered ‘range-bound’ trading conditions after breaking below the “Ascending Channel” in early January, with US$ 1,810 and US$ 1,870 serving as immediate support and resistance levels respectively (chart below). The overall trend appears lack clear direction, as suggested by a flat MACD indicator .
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· Silver likely to rise to $35 per ounce in 2021: BofA
Silver could rise to $35 per ounce (/oz) this year, with a spike to $50/oz possible further down the line, said the latest BofA Global Research report
Silver had been oversupplied between 2016 and 2019, with prices then also capped. Yet, the market has gradually rebalanced on a confluence of factors, including the following:
1) miners have cut back production,
2) the perennial decline of demand from photography has been slowing and
3) demand from solar panels has risen. The last bullet in particular attracted significant investor interest in 2H20, when Biden published his manifesto, which targeted zero emissions from the power sector by 2035.
To accomplish that, electricity generation would in all likelihood need to be overhauled, potentially also through an increase of investment in solar panels. “Under our base case, we have silver in deficit this year, a shortfall that would carry over under Biden's plan,” the report said.
· Silver is rising after Tuesday’s fall
Auction data show that the price of silver has started rising again on Wednesday morning, after Tuesday’s fall, and gold is also going up, according to Prime.
Accordingly, at the CEMEX market, the silver futures for March supplies went up by 2.43 percent to $27,045 per ounce, and gold futures for February rose by 0.47 percent to $1,841.95 per troy ounce.
· Silver online futures volume skyrockets
The trading volume of silver online futures surpassed 4,000 contracts a day in February, the highest since it began trading on the Thailand Futures Exchange (TFEX) last November, after global retail investors pushed the silver price to an eight-year high.
Cash-settled contracts based on 99.9% purity silver bullion were halted for 10 minutes in Monday night trade on the TFEX as the price surged to 30.12 baht, more than a 10% increase from the last settlement price.
According to TFEX regulations, silver trading is halted for a certain period if prices rise over 10% from the last settlement price.
The silver online futures price opened at 29.65 baht before closing at 27.77 baht, down by 6.28%, and recorded 5,544 contracts as of 5pm yesterday.
Reference: FXStreet, DailyFX, BofA, Bangkok Post, News.am
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