Metals Correct As USD Demand Returns

Both gold and silver are starting the week just off recent highs following the correction lower we saw on Friday in response to fresh USD strength. The Dollar found fresh demand as better performance from big names in the US banking sector suggested room for the Fed to press ahead with a further hike next month. Banking sector woes linked to SVB and Signature Bank have been a key part of the argument for the Fed to pause its tightening campaign next month. However, with market leaders such as JPM and Citi doing better than expected, traders are rethinking this outlook. Pricing for a .25% hike in May has now jumped to around 80% from around 60% prior to the data.

Looking ahead this week, metals prices are likely to remain very much linked to USD flows. With a scarce amount of tier one US data until Friday’s PMI readings, US earnings this week will be the main focus. If big names, particularly in the banking sector, continue to show strong performance in Q1, this should strengthen the view that the Fed will hike next month (and possibly beyond), keeping USD supported near-term while weighing on metals. However, should any weakness be seen in earning this week among big US names, this will no doubt put the focus back on recession risks for later in the year, driving support for metals as USD comes off.

Technical Views

Gold

The market reversed lower on Friday just shy of testing the 2069.41 level. For now, however, the focus remains on further upside and an eventual challenge of that level while 1973.51 holds as support within the broader bull channel framing the rally off last year’s lows. Momentum studies have faded quite a bit recently flagging potential downside risks. If we slip back under 2973.51 the next big support is down at 1871.04. 

Silver

The rally in silver prices last week saw the market extending the breakout above the 24.0073 level, running as far as a test of the 26.0974 level before stalling. On that back of that move, the near-term view remains bullish while price holds above those broken highs. Back below there, however, and 22.3205 comes into view as the next key support to note.