The fundamental battle being fought out in the gold market shifted this week.
Recently, the optimism around COVID vaccines and the adjoining rally in risk assets had weighed on gold. In turn, this sent prices lower as the equities market soared and traders rushed out of safe-haven positions.
This week, however, the dynamic has shifted. While risk assets are still climbing, the main factor driving markets is the heavy selling in the US dollar.
At the December FOMC this week, the Fed essentially put an end to any idea of a USD recovery in the near term. The central bank extended its current $120 billion monthly asset purchases, altering their guidance to say that purchases will now continue until significant economic gains have been made.
Along with the guidance that rates will stay at current levels until at least 2023, the news was firmly bearish for USD.
Additionally, the dollar is coming under pressure from growing expectations that the US administration is close to passing a new stimulus bill following the reduction in the amount proposed from above $900 billion to around $750 billion.
With the US dollar cratering, gold prices look set to continue advancing in the near term, despite the strength in equities markets.
Gold Prices Turning Higher
Following the demand interest at the 1765.47 level, gold prices have since turned higher and have now broken back above the 1862.20 level, moving into the upper half of the bearish channel from 2020 highs.
Focus is now on the channel top and should price break above the resistance trend line, the 1964.44 level will be the next resistance to watch.
Silver prices have been tracking the move higher in gold this week, with price accelerating back up to one-month highs.
Along with the upwards support from higher gold and a weaker US dollar, silver prices have also been helped by the ongoing rally in equities prices.
Furthermore, a strong set of manufacturing PMIs this week has lifted silver, helping improve the industrial demand outlook for the metal heading into next year.
Silver Testing Key Resistance
Silver prices have broken out above the bearish channel from summer highs as the rally off the 22.26 level continues to develop.
Price is now testing the 25.92 level which has marked the top of the range over the last few months. If price breaks above here, the focus will be on a move up to the 29.83 level next.