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Gold Records Modest Rally Amid Subdued DXY, Chinese Premiums

January 18, 2021 at 14:37 by Andrew Moran

Gold futures are posting modest gains to start the holiday-shortened trading week. The yellow metal is coming off a weekly loss as bullion prices take a hit amid a strengthening US dollar. Gold was also impacted by President-Elect Joe Biden’s stimulus and relief spending proposals that investors think a large portion will not be approved by lawmakers. In these uncertain times, where is the precious metal headed?

February gold futures tacked on $4.40, or 0.24%, to $1,834.30 per ounce at 13:13 GMT on Monday on the COMEX division of the New York Mercantile Exchange. Last week, gold recorded a 1.1% weekly decline, adding to its disappointing start to 2021.

Silver, the sister commodity to gold, is facing the same downward pressure in the first few weeks of the calendar year. March silver futures added $0.089, or 0.36%, to $24.955 an ounce. The white metal has plunged 6% so far this year.

The US dollar is hovering at a four-week high against multiple currency rivals, limiting gold’s rise. The US Dollar Index (DXY), which gauges the greenback against a basket of currencies, edged up 0.11% to 90.87, from an opening of 90.76. The DXY enjoyed a weekly boost of about 0.5%, lifting its year-to-date jump to more than 1%.

A stronger buck is bad for dollar-pegged commodities because it makes it more expensive for foreign investors to purchase.

Gold is mostly benefiting from positive economic data in China. Although the world’s second-largest economy fell short of gross domestic product (GDP) forecasts in the fourth quarter, China was the only major economy to record annual growth in 2020. This is positive news for the metals market since Beijing is one of the yellow metal’s biggest consumers.

Since early last year, physical gold was sold at a small premium in China for the first time, buoyed by strengthening demand.

According to the Commodity Futures Trading Commission (CFTC), speculators cut their net-long positions in gold and silver contracts in the week ending January 12.

On Thursday, the incoming president outlined his $1.9 trillion stimulus package, which includes $1,400 in direct income support payments, increased unemployment benefits, and vaccination distribution. But market analysts believe that only $1.1 trillion will be approved, while gold markets were disappointed that the price-tag did not exceed $2 trillion. Still, the inflation concerns remain rampant, particularly after the Federal Reserve reassured financial markets that the central bank does not intend to taper monetary policy and slash interest rates anytime soon.

In other metal commodities, March copper futures picked up $0.0125, or 0.35%, to $3.6145 per pound. March platinum futures shed $5.90, or 0.54%, to $1,084.00 per ounce. March palladium futures tumbled $19.60, or 0.82%, to $2,375.50.

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