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The metals market is seeing a much more encouraging start to the week with both gold and silver well bid across the European open on Monday. A softer US Dollar over the recent session has been a big help to metals, with the recovery first kicking in on Friday. The weakness in DXY suggests perhaps some caution ahead of the FOMC minutes, despite broad gains last week amidst hawkish expectations. If Wednesday’s minutes show that there was still support for a larger .5% hike, this will likely feed into hawkish expectations for March, driving USD higher near-term.

USD has seen a strong rally across February amidst a shifting USD outlook. A string of better-than-projected US data points (NFP, unemployment rate, ISM, and retail sales) along with a sharp monthly uptick in January CPI has seen traders mulling the prospect of a larger hike in March. Additionally, last week saw a slew of Fed members issuing hawkish comments, voicing their support for continued hiking and in some cases a larger hike in March.

Looking ahead this week, along with the FOMC minutes, Thursday’s advance US GDP data will also be a key focus point. In light of the upward trend we’ve been seeing, there are hawkish risks going into the data, and should GDP surprise on the upside, metals look vulnerable to fresh selling as USD resumes its rally.
 

Technical Views

Gold

The correction lower in gold prices has seen the market breaking down below the bull channel from YTD highs and below the most recent support level at 1871.04. With momentum studies turned bearish, the focus is on a further push lower while gold prices hold below this level with 1791.63 the next big support level to note. To the topside, a break back above the 1871.04 level will turn the focus to the 1916.34 level next.

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Silver

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The decline in silver prices from the 24.0071 level comes on the back of months of consolidation there. Price has now broken down through the bull channel from last year’s lows and below the 22.3205 level. With momentum studies bearish, the outlook remains in favor of further downside while the price holds below there. 20.6398 is the next support level to note with a break below there opening the way for a much deeper move back toward last year’s lows. 

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