25 January 2021

Gold Settled Lower on Friday, But The Dollar Saw Gains

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News shaping
the markets today

     

What’s happening: Gold prices closed lower on Friday, as the US dollar recorded gains after posting losses last week.

What happened: Gold and silver prices remained under pressure last week on rising US Treasury yields.

Precious metals received support amid higher trading in various assets on hopes of US lawmakers soon passing President Joe Biden’s proposal of a $1.9 trillion rescue plan to revive the world's largest economy. Despite trading lower on Friday, gold record its strongest weekly gain since mid-December.

Why it matters: While the new US President has put forth a massive spending plan, which includes $1,400 in direct payments for Americans, it remains unclear how much of the proposed package the Congress will clear.

Upbeat economic data released on Friday showing an improvement in the IHS Markit services and manufacturing indices in January dulled the demand for safe-haven assets like gold in January.

The US dollar rebounded slightly on Friday, but recorded a weekly decline of around 0.6%, as gauged by the dollar index, which measures the greenback’s performance versus its major rivals. The US dollar competes with gold as the safe-haven asset of choice to diversify investor portfolios. Moreover, a rise in the greenback makes gold more expensive for global buyers, since the yellow metal is priced in US dollars.

Concerns around renewed restrictions in China to curb the spread of the pandemic affected market risk appetite. However, the US dollar found favour among investors at the expense of gold.

Gold prices may remain under pressure in the near term due to rising US Treasury yields, which increases the opportunity cost of holding non-yielding assets like the yellow metal. However, reflation hopes triggered by Biden’s stimulus plan may limit downside.

Gold for February delivery declined by 0.5% to close at $1,856.20 an ounce on Friday, after falling as low as $1,836.30 earlier in the session.

Meanwhile, Silver futures fell by around 1.2% to settle at $25.556 an ounce, after adding 0.3% in the previous session.

Gold logged a weekly rise of 1.4%, notching the first gain in three weeks, while also recording its biggest weekly surge since the week ending December 18. The white metal also rose by 2.8% last week.

What to watch: Investors will monitor developments around the covid-19 package proposed by Biden. The plan being approved by US lawmakers is likely to support gold prices amid wider trading in the global financial markets.

Rising covid-19 cases remain a major concern for the markets, with total cases exceeding 99.1 million globally.

The Markets Today

     

European stocks will be in focus today after closing lower on Friday.

Context: European markets came under pressure on the last trading session of the week, adding to losses from the earlier session due to concerns over rising covid-19 cases and stricter restrictions across the world.

Details: A new variant of covid-19 has resulted in renewed lockdown restrictions in various regions of the world, including some parts in Asia. Rising cases also forced EU leaders to consider implementing internal border closures.

Disappointing economic data from the Eurozone also adversely impacted the stock markets on Friday. Data showed the region’s private sector activity shrinking at an increased pace this month amid the current pandemic-related restrictions.

The Eurozone’s composite output index fell to 47.5 in January, from 49.1 in December, showing a contraction for the third straight month.

The pan European Stoxx 600 closed lower by 0.57% on Friday, with travel and leisure shares leading the decline. The German DAX 30 index and the French 40 lost 0.24% and 0.56%, respectively.

The UK's FTSE 100 slipped 0.3% on Friday, as the country recorded its sharpest decline in business activity since May. The IHS Markit/CIPS composite PMI for the UK declined to 40.6 in January, from 50.4 in December. Although the country’s retail sales rose 0.3% month over month, growth was much lower than the consensus estimate of 1.2%.

What to watch: With no major economic data due for release today, markets will keep an eye on the daily covid-19 cases.

Investors will look for signs of a pickup in the vaccination process to slow the spread of infections and restart economy activity around the world.

Other Markets: US indices closed lower on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.57, 0.30% and 0.29%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey’s capacity utilization and manufacturing confidence index, Germany’s Ifo business climate indicator, Mexico's index of economic activity, Brazil’s net payrolls, Russia’s industrial production as well as the US Chicago Fed national activity index and Dallas Fed manufacturing index.

 

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