Daily Market Recap - Gold & Silver Update

Yesterday, most U.S. markets were closed due to President Day. In addition, Chinese markets are also closed due to the holidays that accompany the lunar New Year. Monday was therefore a quiet session for both gold and silver. The latter continued to outperform at the start of the week, appreciating by more than 1% to close at around $27.6. The yellow metal was down about 0.3% to end the session at $1,818.

On Tuesday we noticed a deterioration in gold prices in lockstep with silver. The latter falling by 1.25 percent and the former also down by roughly the same amount. Steepening US Treasury yields are the main drivers in the metals weakness today. The yield on the 30-year bill rose by 76 basis points while the 10-year is up to 86 basis points, increasing the opportunity cost of holding the non-interest-bearing metals.

Traders who were betting on the weak dollar/ strong gold relationship got burnt by the unexpected surge in Treasury yields. While this strategy has its benefits, its major weakness is the effective interest rates can have on the metal. A better way to look at the gold markets should be focusing on the correlation between US treasury yields and gold, which historically speaking, holds true over the long run.

Meanwhile, gold ETFs experienced another month of net inflows, according to the World Gold Council. In the first month of the year, yellow metal ETFs added 13.8 tonnes of ingots to their inventories. Interestingly, however, it was Europe that fuelled this growth. Gold ETFs from the Old Continent added 17.5 tons of metal to their vaults during January, while American ETFs broke 6.3 tons during the same month.

From a technical aspect, gold looks set to test the 1,780-channel once again in the coming sessions. Momentum is pointing towards a further drop in prices and the RSI has room to drop before hitting oversold conditions. Setting a short target around the 1,760 marks can be envisioned. Failure to cross below 1,780 will set the stage for a consolidation play around the 1,800 level.

(Chart Source: Tradingview 16.02.2021)

Looking at silver, the main trend remains up on the daily chart as the metal benefits from strong upward momentum since the start of the year. The 20-day moving average should keep any dips in check for the time being. A breach below will open up the possibility of a test of the 26 marks.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.