Data dependent precious metals continue their bumpy ride

As per our monitor above, we continue to watch movements in the dollar, 10-year US real yields, short-term interest rates futures as well as trade flows in ETFs and futures. Today’s weakness has been driven by the dollar, which following eight weeks of selling from speculators in the futures market has been left exposed to short-covering, a process that gathered momentum today amid increased geopolitical tensions and traders once again dialing back on the prospect of a March FOMC rate cut while hanging onto expectations the Fed will deliver at least six quarter percent cuts this year. 

One of gold’s biggest achilleas heals remain the lack of interest from investors through ETFs, where total holdings continue to drop, falling to a near four-year low, and until we see the funding cost of holding a gold position beginning to come down, the prospect of a price supportive pickup in demand seems limited. Speculators in the futures market, meanwhile, will continue to add volatility to the market as they buy in the strength, only to reduce their exposure as prices weaken. 

Silver continues to trade near a ten-month low relative to gold on a combination of a weak start to the year for industrial metals amid global economic growth concerns and lack of strong stimulus initiatives in China. The upside is also being obstructed by a nearby wall of resistance in XAGUSD around $23.60 as it attracts profit taking from short-term focused swing traders, while support at $22.50 looks equally strong, leaving the white metal range bound for now. Speculators in the futures market meanwhile maintain an overall weak belief in higher prices with the latest COT report covering the week to January 9 showing a 50% drop in the net long to just 8k contracts, a two-month low, and below the 12k average position held this past year.