Gains in U.S. equities and dollar curtail upside move in gold today

Considering yesterday’s sharp decline and rapid recovery in gold prices, today’s trading activity exhibited follow-through strength resulting in moderate gains for gold futures. As of 4:00 PM EST, the most active February 2021 Comex contract is currently up by $6.30 and fixed at $1914.90. This is a net gain of approximately 3/10 of a percent with a high of $1929.60, and a low of $1970.50. There were two major factors that limited gains in gold futures.

The first of which was dollar strength, with the dollar index gaining 29 points, or +0.33%, and is currently fixed at 89.80. On a technical basis, the dollar index is still below a key price level which was the former level of major support at 91.40. This price point is derived from a Fibonacci retracement. The data set used for the Fibonacci retracement begins in 2008 when the index was trading just above 71 and concludes in March of this year when the dollar index traded as high as 104. 91.40 represents the 38.2% Fibonacci retracement of that data set.

The second major factor that limited the upside move in gold today was a strong performance in the U.S. equities markets. The Dow Jones industrial average gained 211 points (+0.69%) and is currently fixed at 31,041.73. The S&P 500 had a respectable gain of +1.56% which takes that index to 3805.99. However, it was the NASDAQ composite that exhibited the most dynamic gain on the day which resulted in the tech-heavy index gaining +2.57%.

Although it’s difficult to quantify the net effect that today’s gain in bitcoin had been curtailing gains in gold, the cryptocurrency continues to run to new all-time highs almost daily. The Chicago Mercantile Exchange’s most active bitcoin futures contract gained +9.33% and is currently fixed at $39,940 per coin. BTC’s futures price is slightly above the cash market price for bitcoin which reached a high today of $40,419.00 before settling at $39,475.

Of the four precious metals traded on the futures exchange (gold, silver, platinum, and palladium) it was silver that shined the brightest resulting in the largest percentage gain of the precious metals complex. The most active March 2021 silver contract gained +0.99% today, and after factoring in the additional value of $0.27, March silver is currently fixed at $27.305. One plausible explanation for silver’s stellar performance today, when compared to other precious metals, is its characteristic of both a safe-haven asset but more importantly is an industrial metal that continues to be in high demand.

The fact that both equities in the United States and globally performed as well as they did following yesterday’s fiasco and chaos in Washington is a testament to the overall strength and resilience reflecting a long-term optimistic view even in the light of the pandemic which is still currently limiting any global economic expansion.

The take away from today’s respectable performance in equities worldwide is an indication that market participants continue to focus far into the future and based their investment decisions on where they believe the global economy will be a year or two from now rather than the current outlook.

Wishing you as always, good trading and good health,