Gold prices have been higher across the week, benefitting from the pullback in the greenback.
Following the rally over the prior week, the dollar declined as inflation data came in below expectations. While headline CPI for February matched expectations, the core reading, which is the more important gauge, fell short of expectations.
The data miss weighed on both treasury yields and the dollar as traders pared back their inflation expectations. Following the big run-up in yields recently, and a great deal of attention placed on rising inflation expectations, the undershoot has seen a quick repricing of the near-term dollar path. This allowed gold prices to rally.
The Fed has consistently sought to reassure markets that any pickup in inflation is likely to be short-lived and won’t provoke a shift in policy. And the inflation data this week certainly goes some way to backing up this view.
However, with broader data points continuing to improve, the outlook for gold looks skewed to the downside as dollar strength looks likely in the medium term.
Gold Bounces Off 1700
The rally in gold prices this week saw the market trading back above the 1700 handle following a brief move below the level. Price is now trading back within the middle of the bear channel from 2020 highs. While price holds below the 1763.88 level, the near-term outlook is for further downside towards the 1634.74 level.
Silver prices have largely matched the moves in gold this week with initial weakness reversed to see the market trading into positive territory over the week.
The rally has been supported by the uptick in equities this week with US indices breaking out to fresh highs following the passing of the US fiscal stimulus bill.
The $1.9 trillion stimulus package has been cheered by markets, sending the dollar lower. The key battle for silver now will be against inflation expectations.
If inflation expectations begin to rise again, this will likely cap the rally in silver.
Silver Rallies off 25.1018
This week, silver prices rallied firmly off the 25.1018 level. While above here, the focus is on a test of the 27.4502 level.
Bulls will need to see a break back above this level to regain momentum from the breakout above the broken trend line from 2020 highs.