Gold under Pressure, January closed with Massive Liquidation

There are contrasting developments in the precious metals market. First, gold appears to be under pressure as the USD appears to strengthen despite Jerome Powell sounding dovish in the recent FOMC statement. Second, silver, an important component in the pollution-free automobile revolution, rallied to a new 2.5 weeks high. These two are highly correlated. A revival in the former (AG) may reinvigorate bullion prices coming just when the ECB Governing Council Member, Rehn, said the central bank is watching its exchange rate, especially regarding its inflation outlook.

Details: 

A USD revival will shave gains in gold and further heap pressure on the yellow metal that closed January with massive liquidations. The FED is clear that QE tapering is dependent on the labor market, the economy, and inflation. Meanwhile, the ECB is watching its exchange rate, a net positive for gold. Therefore, if Silver recovers, prints higher, gold prices may start February stronger, diverge from historical patterns, and break above the current consolidation. This, unlike before, is because of the Coronavirus situation that spells different, affecting economic reports and forecasts from policymakers. Therefore, some analysts remain bullish, strongly convinced of a longer runway for gold prices as long as real interest rates are low and central banks maintain an even looser monetary policy.

Impact on Gold Prices: 

Bullish. A cocktail of fundamental events-- top of the list, central bankers' decision to remain loose with record-low interest rates, is bullish for gold even if the greenback recovers and bond yield rises.

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