Precious metals remain under pressure

The US dollar’s sharp recovery has not shown any major signs of a reversal yet, and this is keeping precious metals under pressure. While gold eked out a small gain on Monday and was holding its own in the positive territory at the time of writing on Tuesday morning, the damage has already been done and further weakness should not come as surprise.

Gold and silver suffered a sharp two-day sell-off at the back end of last week, as the dollar bounced back with a vengeance on the back of a much stronger US jobs print and ISM PMI report. The stronger US data has seen the market gravitate towards “higher for longer” narrative, helping to provide support for the dollar on the dips, while keeping a lid on precious metals.

Investors are now expecting the Fed to maintain a contractionary monetary policy in place longer than expected in order to dampen inflationary pressures that could arise from a tighter labour market. This is why we have seen the probability of another 25-basis point rate hike in March rise to almost 100%, while that of another 25 bp hike in May has jumped to 67% from about 40% a week ago.

There’s not much data today to help trigger a change in market’s perception of where the Fed might lift interest rates to. But Fed Chair Jerome Powell is giving a speech at 17:40 GMT, so it is possible we could see some movements around that time. Given the strong employment report on Friday Powell may try to strike a hawkish tone to align the market expectations with the FOMC’s central view again.

Ahead of the Powel speech, and as a result of the renewed weakness in prices, the path of least resistance continues to remain to the downside for gold, until the dollar tops out.

The bears will be happy or as long gold holds below key resistance in the $1880 to $1900 range. This area was formerly support and resistance. But with price now back beneath this area and below the broken trend line and 21-day exponential moving average, the bulls have lost the control they had enjoyed since November.

From here, gold may go on to extend its decline towards $1800, if the macro conditions continue to boost the appeal of the dollar over other currencies. Monday’s low at $1860 is the next immediate target for the sellers.

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.