No new Fed monetary stimulus measures: gold prices slide, silver up

GOLD bullion prices are set to end the last week of this month with lacklustre performance due to a series of disappointing drivers, unlike its poorer cousin, silver bullion, which shot higher in the speculative frenzy brought on by GameStop and "WallStreetBets".

The week's highlight was supposed to be the Federal Reserve's FOMC meeting. But the Fed disappointed gold as it was mildly dovish and did not announce any new monetary stimulus measures, and gold prices edged lower.

Yet, despite a quiet week, an unexpected development was perceived in the precious metals market. Attention-grabbing chatter on social media platforms point to precious metals, especially silver, as one of the next targets of WallStreetBets retail traders. Silver prices rose as chat rooms filled with messages about a "GameStop-style" squeeze. However, the precious metals market is much larger and more liquid than shares of heavily shorted companies such as GameStop. The perceived effort of retail speculators may have only a minor effect.

What should investors look out for in the longer term?

The World Gold Council (WGC) said in a research note released this week that global gold demand is set to recover this year, after slumping to the lowest in more than a decade in 2020. Bullion prices had climbed to an all-time high and pandemic lockdowns stifled consumption. The decline was led by the key Indian and Chinese markets, which experienced historically weak sales. The economic recovery in China is supporting a rebound in demand, said Louise Street, the WGC's senior markets analyst.

Technical Analysis for Comex February Gold Futures (GCG21)

After last week's rally above support to a high of US$1,874, the benchmark gold contract gave up some of the gains and prices fell to US$1,830 before buying interest rallied the market higher. Bullish traders managed to hold ground above the minor support for the rest of the week, with day traders taking advantage of technical pivots points.

The recent rebound of the dollar and US Treasury yields have however made the short-term narrative a little tricky, hence the disability of benchmark gold futures to follow through after breaking the US$1,860 resistance, and hesitating move ahead of US$1,874.

Gold prices are set to close the week on a weak note. Technically, the massive bounce from US$1,800 last week and a break through the 200-day EMA is bullish. Longer-term bullish traders can be expected to take advantage of a "buy-and-hold" type of strategy due to the massive stimulus measures induced by the coronavirus. The major support for the GC Feb contract lies at US$1,800 and then US$1,767. Immediate resistance is at US$1,874, US$1,900 and US$1,970 followed by US$2,000.

• The writer is a senior manager for commodities at Phillip Futures