Metals Rally on USD Decline

The metals market is seeing an encouraging start to the week with both gold and silver in decent demand on Monday. The main driver currently is the sell off in USD on the back of Friday’s December US labour reports. The headline NFP reading was seen above market forecasts at 223k vs 200k expected along with the unemployment rate falling back to 3.5% from 3.7% expected. However, the main focus was on the unexpected drop in average hourly earnings which fell to 0.3% from 0.4% prior.

The drop in wages growth has been taken as an indicator that this week’s December US CPI data is likely to reflect further cooling of inflation. With markets keen to gauge the Fed’s next steps and the prospect of a deeper pivot on rates (.25% from 0.5% hikes), Thursday’s data will be the headline data event of the week. The market is looking for headline CPI at 6.5% down from 7.1% which, if seen, should weigh on USD further allowing metals room to run higher still.

Alongside the moves in USD, worth keeping an eye on risk sentiment this week also. China reopening its borders at the weekend is a material shift in the global narrative. While there are still grave concerns around the country’s covid situation, markets appear to be shrugging those off for now and instead focusing on the positives. Upside in equities is limiting gains in metals as with the rally we’re seeing in commodity currencies which is also attracting capital flow. Near-term, however, the outlook remains favourable for metals while USD remains under pressure. Ahead of US CPI on Thursday, traders will be looking to Fed’s Powell who speaks tomorrow with traders keen to hear if Powell addresses Friday’s jobs data and the implications for the inflation outlook. 

Technical Views

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The rally in gold prices have seen the market piercing above the 1871.04 resistance level. While momentum studies are flagging some bearish divergence, highlighting room for a correction near-term, the broader outlook remains bullish while price holds above the 1791.63 level with 1916.34 the target for bulls.

Silver

The rally in silver prices has seen the market trading back up to retest the 24.0073 level. This has proved a sticking point for silver recently though, with price still trading within the bull channel off the 2022 lows, the focus remains on an eventual break higher here targeting 26.0974 above. Should price slip below the channel lows, 22.3205 is the next support area to note.