Precious Metals Weekly Round-Up: Gold Price Reacts to Trade Deal

After spending January steadily trending higher, gold dropped this week as positive relations between Washington and Beijing provided headwinds.

Gold started the week at US$1,578 per ounce and fell to US$1,548 mid-week, putting it on track to record its largest weekly drop in three months.

The phase one trade deal penned by Chinese President Xi Jinping and US Head of State Donald Trump quelled some demand for safe haven metals, which saw heightened interest throughout the dispute.

The lowering of tariffs on US$75 billion of imported goods to China further evidenced the good will between the countries late in the week.

The coronavirus also continues to weigh on markets, with gold benefiting from the turmoil; however, analysts believe the impact will be short-lived.

“I believe it is having a significant short-term impact, but I doubt that it will weigh on the market for the rest of the year,” Brien Lundin, editor of the Gold Newsletter, said via email. “The primary negative impact on Asian gold demand will be due to price resistance as gold continues to climb.”

Lundin sees other key factors moving the yellow metal throughout the year.

“Central bank demand will remain strong, although we are seeing the Russian central bank pulling back from its torrid pace of purchases,” he said. “Professional investors and exchange-traded fund demand should remain high as investors seek a hedge against loosening monetary policy and over-valuation in the US stock market.”

He also noted that there isn’t a measurable cost to using gold as a hedge.

“(T)he metal should perform well if conditions cause a stock market decline, but should also do well if/when monetary easing moves stocks higher. So gold presents a win/win proposition,” said Lundin.

Gold was trading for US$1,570.33 at 10:19 a.m. EST on Friday (February 7).

Silver also slipped mid-week. The white metal started the period below US$18 per ounce, then dropped to US$17.45 on Wednesday (February 5), its weakest showing since December.

The white metal made some gains, but still remained rangebound at the US$17.50 to US$17.75 level.

While the gold/silver ratio remains high at 88.5, market watchers expect the white metal to make gains over the year following last year’s gold rally, which silver was unable to benefit from.

“Silver has been lagging gold, and the series of lower highs since September is a bearish technical sign for the metal,” Andrew Hecht of the Hecht Commodity Report wrote.

“However, the continuation of strength in the gold market could cause a sudden wave of buying to move into silver, particularly if gold remains in bullish mode.”

An ounce of silver was selling for US$17.71 as of Friday at 10:20 a.m. EST.

The week was a volatile one for platinum, but the metal was able make gains, rising 2.1 percent from US$963 per ounce to US$984 on Wednesday.

Platinum’s versatility and use as an industrial catalyst in the automotive sector has the metal becoming less correlated to gold and gaining a tighter connection to base metals and palladium.

“Looking ahead, we believe that the current trading regime of platinum could be conducive to a stronger platinum price in February, considering our expectations for a rebound in base metals prices on abating macro fears,” states a report from Orchid Research.

The note goes on to caution platinum’s “high sensitivity” to palladium, a metal the research group believes reached its local peak in January.

Platinum was moving at US$966 an ounce at 10:21 a.m. EST on Friday.

As for palladium — the metal that has spent six months steadily moving higher — the week was marked with more gains. The price started the session at US$2,194 per ounce, then rocketed to US$2,353 mid-week, a 7 percent increase.

The metal subsequently fell to its lowest point this week in pre-trading hours on Friday at US$2,174. However, it is still on track to record a weekly gain since hitting a flat period at the end of January.

According to reports, the recent dip was brought on by coronavirus concerns and will likely be short term. In the long term, new automotive emissions standards in China are expected to support the palladium market this year.

An ounce of palladium was trading for US$2,188 on Friday at 10:16 a.m. EST.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

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