Gold and Silver Analysis

Forex 2020

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Gold and silver prices this morning are weaker. A stronger dollar today is weighing on metals prices. Silver prices are also under pressure today from concern that tighter and longer Covid lockdowns will reduce economic activity and curb industrial metals demand. Losses in gold were limited by dovish ECB comments and weakness in stocks that boosted some safe-haven demand for gold.

Global economic data today was mostly supportive for gold but negative for industrial metals demand and silver prices. The U.S. Jan Dallas Fed manufacturing activity index unexpectedly fell -2.7 to a 6-month low of 7.0, weaker than expectations for an increase to 12.0. Also, the German Jan IFO business climate index fell -2.1 to a 6-month low of 90.1, weaker than expectations of 91.4. A bearish factor for gold but a positive for silver was the U.S. Dec Chicago Fed national activity index that unexpectedly rose +0.21 to 0.52, stronger than expectations for a decline to 0.10.

ECB comments today were bullish for gold demand as a store of value after ECB Executive Board member Panetta said that "exiting the pandemic crisis will require prolonged support from economic policies, both monetary and fiscal, and a significant increase in productive investment." Also, ECB Chief Economist Lane said that the intensifying pandemic is a "significant" downside economic risk.

Gold has support from the worsening Covid pandemic, which is dovish for central bank policies. However, the pandemic is forcing countries to tighten their lockdowns, which is negative for economic growth and industrial metals demand and bearish for silver prices. France's Health Minister said France is set to go back into lockdown "within days" amid concerns that a new wave of infections driven by the more-contagious UK variant of Covid could spiral out of control. Also, UK Prime Minister Johnson said the UK would not loosen its Covid restrictions before mid-February. Globally, Covid infections have risen above 99.855 million, and deaths have exceeded 2.140 million.

Safe-haven demand and dovish central bank expectations have sparked fund buying of precious metals in recent months. Long silver positions in ETFs rose to a record high Friday of 912.396 million troy ounces (data from 1990). However, long liquidation has set in gold after long gold positions in ETFs fell to a 5-3/4 month low on December 22, down from October's record high of 3,459.8 metric tons (data since 2002).
 
 
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