Gold trades lower and silver gains as bullish risk-on sentiment prevail

Today, we had a mixed bag in the precious metals markets, resulting in gold declining for the second consecutive day, and silver recovering and trading higher after yesterday’s decline. Yesterday, market participants in U.S. equities were solidly risk-off, taking all three major indices lower. Today U.S. equities reversed, scoring solid gains across-the-board.

The Dow Jones industrial average gained 560.64 points, or 1.60% and closed today at 35,492. The NASDAQ composite had the largest percentage gain trading up 2.40%, and the Standard & Poor’s 500 gained 1.78%.

Phillip Streible, chief market strategist at Blue Line Futures in Chicago, said, “You got a risk-on trade with U.S. equities bouncing back after the losses yesterday.”

Silver benefited from the strong showing in U.S. equities based upon its intrinsic industrial value. Gold, however, did decline as investors favored equities over the safe-haven asset, gold. As of 4:55 PM EST gold futures basis, the most active February Comex contract was trading off by $5.50 (-0.31%) and fixed at $1789.10. Although the dollar was slightly lower, its fractional gains only provided minor tailwinds.

These fractional gains resulting from dollar weakness can be seen in spot gold through the eyes of the Kitco Gold Index (KGX). Spot gold is fixed at $1788.50, with a net gain of $0.35 directly attributable to fractional weakness in the dollar index. Normal trading took spot gold pricing down by $3.05 resulting in a net decline of $2.70.

However, silver benefited from the solid bullish risk-on market sentiment, gaining just under $0.24 (+1.07%) in trading today. Basis the most active March Comex futures contract silver is currently fixed at $22.53.

Unlike yesterday’s decline in the U.S. stock market in which stock traders focused upon their concerns about the new Covid-19 variant Omicron. Today traders chose to largely ignore potential economic risks that could come due to this new variant. However, market participants trading gold and silver continue to buy the dips as Omicron quickly becomes the predominant variant in the United States.

According to the Associated Press, “Much of the concern is being driven by omicron, which federal health officials announced accounted for 73% of new infections last week, a nearly sixfold increase in only seven days.”

They also reported that “The Centers for Disease Control and Prevention numbers showed nearly a six-fold increase in omicron’s share of infections in only one week. In much of the country, it’s even higher. Omicron is responsible for an estimated 90% or more of new infections in the New York area, the Southeast, the industrial Midwest, and the Pacific Northwest. The national rate suggests that more than 650,000 omicron infections occurred in the U.S. last week.”

What is known about this new variant is that it is much more contagious than previous variants of the Covid-19 virus. However, although it is the dominant variant in the United States the top virologists and the CDC have stated that much about this new variant remains an unknown. The unknowns include whether or not this variant causes more or less severe illness once contracted.

This makes any potential economic contraction due to the virus unknown. As such could be highly supportive of the safe-haven asset gold, and pressure the U.S. equities markets through the end of the year and into 2022.

Wishing you as always good trading and good health,