Gold and Silver continue pushing higher despite fundamental weakness

Precious metals have been taking advantage of the recent pullback in the US dollar. Gold (XAU/USD) has advanced 1.7% in the last four sessions whilst Silver (XAG/USD) rose over 7% before pulling back on Monday. Both had struggled to attract buyers over the past few weeks as stronger economic data in the US led markets to reprice their expectations about rate cuts from the Federal Reserve. This pushed the dollar to three-month highs, but it also helped yields recover some ground, which weighed on precious metals as it increased the opportunity cost of holding them as they are non-yielding assets.

The idea that the US economy has successfully navigated a soft landing hinders the bullish potential of gold and silver. They are typically viewed as safe-haven assets and therefore outperform other assets in times of economic uncertainty – which seems to be the opposite of what is currently happening in the US. It also doesn’t help that the stronger data is allowing the Federal Reserve to keep rates elevated. For as long as this scenario continues, both XAU/USD and XAG/USD are likely to face increased resistance and struggle to keep trading above $2,000/oz and $22/oz respectively.

It is a lighter week on the economic calendar, so traders are likely going to keep to the path of least resistance in an attempt to determine direction. The key event this week will likely be the Fed meeting minutes released on Wednesday. They are likely to not shield any new insight, but traders will pick apart every sentence to try and figure out what the Fed's future guidance is - most specifically when the first rate cut will be delivered. Futures are currently pricing in the first 25bps of easing by June but there is still a 35% chance priced in that it could happen in May. That seems unlikely given how the latest data has reinforced the hawkish rhetoric, but that won’t stop dovish hopefuls from trying to read between the lines in the Fed minutes, and subsequent press conferences until the next meeting in March.

Realistically, the best scenario for precious metals would be an unexpected change in stance from the Federal Reserve, brought on by weaker data. Lower rates coupled with concerns about economic growth would be the perfect catalyst for gold and silver bulls to come back in force, but that seems unlikely right now.

For the time being, XAU/USD seems to be caught between its moving averages with the 100-day SMA offering support around $1,995 and the 50-day SMA limiting the upside to around $2,030. The four-day rally has pushed the RSI back into positive territory but even if buyers decide to come back in pushing above $2,060 is likely going to be hard. That said, as long as the price remains above the $2,000 mark then the longer-term momentum remains attractive for buyers.

.  Past performance is not a reliable indicator of future results.

XAG/USD managed to find support at $21.90 for the third time in four months, strengthening the idea that there isn’t a strong appetite to be a seller in precious metals just yet. The rally last week found resistance on Monday as the US was closed for Presidents Day, but the momentum has recovered once again during the European session on Tuesday. The 5-day exponential moving average has returned below the price offering short-term support within the uptrend. But the confluence of moving averages around 23.10 is limiting some of the bullish momentum and buyers will need to look for a break above 23.30 to consider the continuation of the bullish reversal initiated last week.

.  Past performance is not a reliable indicator of future results.