A few variables are thought to be the key drives of gold weakness. First, the US Dollar was in a position to pick up bullish momentum as macroeconomic statistics for the US has been advancing, with the US Dollar index setting a foundation on the 6th of January at 89.16, hindering USD-denominated commodities such as gold and silver.
Fundamental factors aiding the US Dollar are the efficient vaccination rate the country is visiting, coupled with favorable signals of cooperation coming out of US Congress with regards to additional fiscal stimulus. The financial statistics has also been positive, with ISM services and manufacturing data beating expectations, in addition to a substantial increase in ADP employment numbers on Wednesday. This better than expected reading has been unfortunately not carried through the NFP numbers released on Friday, together with the true figure falling 1k short of the 50k expected, and December figures revised downward to -227k from -140k.
The US Dollar returned a number of the last gains once the figures were released, but it doesn't ultimately change the direction the currency is going in. If anything, it gets the Biden government's case for a great deal of stimulation more powerful. Gold and silver prices are most likely to stay underpinned by US Dollar performance in the near future.
RISE IN BOND YIELDS OFFSET GOLD HEDGE
Bond yields have been creeping higher in recent weeks along with the US 10-year yield is currently above the January 11th summit, sitting around 1.15 percent. The growth in yields weighs negatively on stone, a non-yielding asset, and this may well continue to be the case when expectations of future financial performance increase. In a low-interest surroundings, gold tends to outperform as its opportunity cost is low since investors aren't foregoing interest that would be otherwise earned in yielding assets, but increasing yields offset this particular setup.
Another factor to take into consideration is inflation expectations, as an increase in inflation is most likely the largest upside risk for gold this season. Actual yields were at a reduced this summer, allowing gold to outperform other assets, with a subsequent correction because prices normalized towards the end of the year. Assuming that the Fed won't cut interest rates further and that investors will not anticipate a further slowing of the economy, the area for additional declines in the real interest rate is restricted. Thus, a continuation of the positive trend, at which point actual returns may become favorable again, is likely to keep the price of gold subdued in the near-term.
Although expectations are for inflation to increase this year on the rear of built-up requirement, gold traders will need to get prepared for the continuation of the environment of low inflation in the not too distant future.
SILVER FUNDAMENTAL FORECAST: NEUTRAL
An tried short-squeeze in silver costs payable by a swarm of retail dealers piled together on social networking platform Reddit watched the cost of the precious metal just to $30 at the beginning of the week, but those gains have been fully given back. This leads us to think the setup was a false breakout and more weakness could be expected before price becomes bullish again.
Basically, silver confronts the very same problems as gold however, the magnitude of its effect is thought to be lower, with lots of investors focusing solely on gold as a hedge against falling yields and market instability. A slide below the 26 mark could attract additional selling pressure, even though the 100-day SMA could act as support on the 25 line.
