A Sluggish Start
The gold market kicked off the new trading week on a sluggish note, declining by some $22 per ounce in late afternoon trade. The yellow metal was likely falling victim to chart based selling that gave investors reason to hit the sell button. Of particular note Monday was gold and silver’s ignorance of a risk-off scenario in the markets. The failure of the metals to catch a bid in early action Monday could be a warning signal to bulls and may suggest that additional bearish pressure could be on the horizon.
The story of the day is the margin calls being experienced by Archegos Capital Management. The firm reportedly dumped some $30 billion in holdings late last week and that move could have been due to being overleveraged. The major concern was for the potential of contagion in the markets. Thus far, however, markets have shown little interest in the scenario and any contagion effect appears to be limited, if existing at all.
That could change, however, and any signs of market contagion have the potential to light a fire under gold and silver. Worries over a more damaging effect could send bids into the precious metals space immediately as investors look to escape the potential carnage.
In other news, investors are looking forward to the Biden Administration’s release of its next economic plans, due to be unveiled Wednesday. The first of two sections of the administration’s agenda, the proposal could reportedly cost several trillion dollars and may also include a substantial amount of new tax revenues. It is unclear what effect, if any, the proposal may have on the metals markets. Any significant uptick in spending without the means to pay for that spending could pressure the dollar and drive buying in the metals as a hedge, however.
A big plus for the gold market in recent years has been the global move away from the U.S. Dollar. That move appears to be ongoing. The Russian National Wealth Fund recently announced its intention to move into gold. The move likely has something to do with Russia’s de-dollarization efforts which have been ongoing for several years now. The Russian central bank stated in January that its gold holdings had finally surpassed its dollar holdings. The central bank has reportedly purchased over 200 tonnes of gold on average per year since 2014 with the exception of last year’s smaller total.
The dollar did, however, hit a four-month high today as worries over the hedge fund default took hold. The Dollar Index is now at the highest level since November 2020 and could potentially be poised for further upside. Any additional gains may weigh on the gold market, while a reversal lower could set the stage for stronger gold and metals prices. With today’s poor showing, the bears are again in control on the daily chart and may look to expand the downtrend that has been in place several weeks now.