Gold, Silver, Treasury Yields, Negative Yielding Debt – Talking Points
- Gold and silver modestly higher but prices remain pressured by higher Treasury yields
- XAU/USD’s technical position doesn’t offer convincing views for higher or lower action
- Silver price at fragile position with bulls struggling to take XAG/USD back above the 28 handle
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Gold and silver prices are finding a bid after a relatively calm day that saw modest losses across the precious metals space. Federal Reserve Chair Jerome Powell provided an update on monetary policy before the US Senate Banking Committee. He didn’t offer any surprises, but made sure to note that the economic outlook remains uncertain and largely dependent on Covid-19.
XAU/USD is trading just above the 1800 level after an early week surge that brought prices up from the 1760-1770 level. Meanwhile, silver’s early week gains are at risk with XAG/USD attempting to hold at the 27.5 handle. A pause in the recent rise seen in government bond yields – particularly long-dated Treasuries – are helping to support precious metal prices. Rising rates have reduced the amount of negative yielding debt carried by global investors – seen in the chart below. If this trend continues, then non-interest bearing assets, like gold and silver, may remain at risk.
Bets on the global economic recovery have grown stronger this year, supported by increased fiscal stimulus odds, improving Covid-19 infection rates, vaccine distribution efforts and improving consumer confidence. The reflationary outlook should typically bode well for gold prices, with the yellow metal viewed by many as a hedge against inflation. However, spot gold prices have dropped nearly 5% since the start of the year.
Silver, which also traditionally benefits from a reflationary environment, has outperformed gold with spot prices just under 5% higher year-to-date. The outperformance in silver may be reflective of the metal’s industrial applications in addition to its utility as a store of value to investors. Still, the fundamental outlook remains supportive for both metals, but for now, silver may continue outperforming gold.
Gold Technical Outlook
Gold has been trading within a downward channel since its August swing high, with XAU/USD currently at the 23.6% Fibonacci retracement level from its most recent major move. The current upward momentum may be primed to continue according to the MACD’s recent cross above its signal line.
A push higher into the 1840-1860 range would be an ideal range for bulls to recover before pushing higher, but holding above the psychologically important 1800 level may offer a chance for more near-term consolidation. Breaking below 1760 would likely open the door for prices to test channel support.
Gold Daily Price Chart
Chart created with TradingView
Silver Technical Outlook
Meanwhile, silver is slightly higher but the 23.6% Fibonacci retracement level from the November to February move successfully pressured prices earlier this week. A decisive break above the 28 handle would likely allow prices to clear above that point of resistance and allow for a retest of the multi-month high set in early February.
The 20-day Simple Moving Average has supported prices this month and may do so again on a pullback. A break below the SMA would see trendline support from the November swing low move back into focus. The MACD and RSI oscillators are both in neutral and unremarkable positions, which doesn’t inspire confidence for silver’s technical posture, but the broader trend remains supportive although there is room for prices to move on both sides of the current mark. If bulls can’t take the 28 handle back, however, prices may drop to support.
Silver Daily Price Chart
Chart created with TradingView
Gold and Silver TRADING RESOURCES
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwateron Twitter