Gold

Gold prices continue to hold within the recent range which has framed price action over the last few weeks. Following the heavy sell off over the beginning of January in response to an uptick in US treasury yields and subsequent repricing in the US Dollar, gold prices have remained fairly muted. The Dollar recovery has lost momentum over recent weeks, helping stem the declines in gold. However, there is still room for further upside in the Dollar on the back of the January FOMC meeting which saw the Fed refrain from any further dovish signalling. While the bank acknowledged that the US economy had turned lower again in recent months it held on to its view that H2 will see a firm recovery, aided by vaccinations and US fiscal stimulus.

However, there are some upside risks for gold. The correction lower in equities markets last week, largely fuelled by the controversial Reddit traders’ actions, means that safe haven inflows could once again rise for gold. With equities deemed high risk in the near term as the market digests the current action, investors could start to turn back to gold to protect their capital.

Silver

Silver price action is drawing a lot of attention currently given that it has become of the instruments involved in the WSB trading drive. Traders on the infamous Reddit group have been encouraging each other to bid up silver alongside stocks such as GameStop, Nokia, AMC and others. The fresh demand has seen silver prices breaking out to their highest level since 2012 over the European session so far today. On the data front, this week traders will firstly be awaiting the next US manufacturing PMI which could further the rally in silver if the recent upward trend is seen continuing over the last month. At the top of the week, the main focus is the next round of US labour reports which present the potential for plenty of market volatility given the return to negative jobs growth in December.

Technical Views

XAUUSD

Volatility has contracted greatly in gold prices over recent weeks. For now, the key downside level to watch is the 1803.51 level. A break below there will open a test of the deeper 1764.98 level support. To the topside, any pop higher will need to overcome offers into the 1926.63 level first of all.

XAGUSD

The breakout above the bearish channel in silver is keeping the focus firmly on the upside in the near term. Bulls have seen a clean break above the 273955 level with price now challenging the 2020 highs at 29.8611. If price can hold above here, there is plenty of room for further upside.

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