Safe haven demand drives gold and silver to continue skyrocketing

Gold and silver prices rose sharply to record highs in midday trading in the US on Monday (January 26). Safe-haven demand has once again become the focus of the market: overnight gold prices broke through the $5,000 an ounce mark, COMEX February gold futures hit an all-time high of $5,107.90 an ounce; COMEX March silver futures also hit an all-time high of $113.62 an ounce. Bloomberg said that "the frenzied rise triggered by President Trump's reshaping of international relations and the flight of investors from sovereign bond and currency markets" are driving the market's safe-haven demand for precious metals. The sharp rise in gold highlights the historical role of gold as a measure of market panic, as investors seek to deal with uncertainty, and gold's safe-haven appeal has reached rare heights. Gold futures rose $110 to $5,189.7 an ounce in February, while silver futures rose $13.652 to $114.985 an ounce in March.

The Federal Reserve and global central banks are meeting this week, and traders expect U.S. interest rates to remain unchanged

The Federal Reserve's FOMC and as many as 17 other central banks are due to meet this week. While President Trump has pressured the Fed to cut interest rates, most of these central banks are widely expected to keep rates on hold amid global economic uncertainty. "African central banks are likely to launch a wave of easing, while central banks in other regions such as Brazil, Canada and Sweden are likely to maintain their current policy stance," said a Bloomberg report. "The coming week will see a number of key economic data releases, including inflation reports for Australia, Japan and Brazil, as well as gross domestic product data for the euro area and other countries."

Bloomberg Economics said: "We believe that most FOMC members can cite relevant data to support keeping rates stable at the meeting. This consistency will be seen as support for Powell, who has recently come under fire from the White House. Most notable is the voting position of commissioners Christopher Waller and Michelle Bowman: if they support keeping rates unchanged with the majority, it would signal support for Powell (including maintaining Fed independence) to Trump. We expect Waller to vote yes, but Bowman may vote no."

Rumors of foreign exchange intervention caused the dollar index to decline

Gold and silver bulls were also helped by a sharp decline in the dollar index, which measures the level of the dollar against a basket of major currencies, fell to a four-month low overnight on hopes that the US might join forces with Japan in foreign exchange intervention. The dollar weakened against most major currencies, while the yen rose sharply - amid much talk among investors that a joint intervention by the US and Japan to support the yen could further worsen sentiment against the dollar. A potential currency deal between the US and Japan has reignited talk of "co-ordinating foreign exchange intervention to guide the dollar's depreciation against major trading partners", a move that could help US exporters compete with rivals. Talk of a currency deal reignited on Friday when traders revealed that the New York Fed had contacted the Financial Institution Group about the yen. Bloomberg reported that Wall Street interpreted the inquiries as paving the way for possible US-backed foreign exchange intervention by Japan.

Other key peripheral market developments

In other key peripheral markets today, crude oil prices weakened, trading around $60.50 a barrel; the US 10-year Treasury yield is currently 4.213%.

technical analysis

(COMEX Gold Day Chart, Source: Internet)

February gold futures: bulls have an absolute technical advantage. The next upside target is to break through the key resistance level of $5,250.00/oz. The near-term downside target of bears is to push futures prices below the key technical support level of $470.00/oz. The first resistance level is the overnight all-time high of $5,107.90/oz. Further resistance is at $5,200.00/oz. The first support level is at $5,000.00/oz. Further support is at $4,950.00/oz.

March Silver Futures: Bulls have a strong technical advantage. The next upside target is to break through the key technical resistance level of $125.00/oz. The short-term downside target is to push the closing price below the key support level of $100.00/oz. The first resistance level is today's all-time high of $113.62/oz, and further resistance is at $114.00/oz. The first support level is at $110.00/oz, and further support is at $107.50/oz.

Note: The gold market operates mainly through two pricing mechanisms: the cash market, which offers prices for immediate purchase and delivery, and the futures market, which determines prices for delivery at a future date. Affected by year-end position adjustments and market liquidity, the most actively traded gold futures contract on the Chicago Mercantile Exchange (CME) is the December contract.