Gold, Silver Price Forecast: USD And Yields Turn Higher As Economic Data Improves

GOLD FUNDAMENTAL FORECAST: BEARISH

Gold prices have been unable to hold ground and the commodity has faced two consecutive weeks of declines after an attempted break higher in mid-January.

USD PICKS UP MOMENTUM

A few factors are believed to be the key drives of gold weakness. Firstly, the US Dollar has been able to pick up bullish momentum as macroeconomic data for the US has been improving, with the US Dollar index setting a base on Jan. 6 at 89.16, hindering USD-denominated commodities like gold and silver.

Fundamental factors aiding the US Dollar are the efficient vaccination rate the country is seeing, coupled with positive signs of cooperation coming out of US Congress with regards to further fiscal stimulus. The economic data has also been favorable, with ISM manufacturing and services data beating expectations, as well as a significant increase in ADP employment numbers on Wednesday.

This better-than-expected reading was unfortunately not carried through to the NFP numbers released on Friday, with the actual figure falling 1 thousand short of the 50 thousand expected, and December figures revised downward to -227 thousand from -140 thousand.

The US Dollar returned some of the previous gains when the figures were released, but it doesn’t ultimately change the direction the currency is heading in. If anything, it makes the Biden administration’s case for a large amount of stimulus stronger. Gold and silver prices are likely to remain 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 and the US 10-year yield is now above the Jan. 11 peak, sitting comfortably around 1.15%. The increase in yields weighs negatively on gold, a non-yielding asset, and this may well continue to be the case if expectations of future economic performance increase.

In a low-interest environment, gold tends to outperform, as its opportunity cost is low because investors are not foregoing interest that would be otherwise earned in yielding assets, but increasing yields offset this setup.

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