Precious metals markets are currently experiencing significant swings, with gold prices showing strong volatility and silver facing a very tight supply situation. Investors are carefully watching global events and economic indicators to predict future movements for these valuable assets.
Gold Market Overview: Navigating Price Swings
Spot gold has recently been trading within a range of $4700 to $5100, but this stability masks considerable price fluctuations driven by conflicting market signals. In the week ending February 13, gold saw its price drop sharply by over $200 on February 12. This sudden fall followed a news report from Bloomberg suggesting Russia might return to using the US Dollar and possibly forge strategic deals with the US in critical sectors like natural gas and minerals.
However, the yellow metal quickly regained its losses as both the US and Russia chose not to officially comment on the leaked document. By the close of the week on February 13, spot gold had climbed to $5042, marking a 1.54% weekly gain and achieving its highest weekly closing price ever. Trading activity was lighter on February 16 due to the Presidents’ Day holiday in the US and the start of China's Lunar New Year celebrations, which extend until February 23.
As of writing, gold was trading around $4992, down almost 1% for the day. This cautious sentiment comes as investors anticipate the second round of US-Iran talks slated to begin in Geneva on February 17. Meanwhile, MCX April gold also saw a dip, falling 0.70% to Rs 154,800.
Geopolitical Landscape: A Key Driver for Gold Prices
Geopolitical developments are playing a crucial role in the precious metals market:
- US-Iran Negotiations: Indirect talks between the US and Iran are set to restart in Geneva. Israeli Prime Minister Netanyahu has outlined conditions, including limits on Iran's enriched material, nuclear enrichment capabilities, and ballistic missile range (suggesting adherence to a 300 KM MTCR limit).
- Military Buildup: The US is increasing its military presence near Iran, confirming the nuclear-powered aircraft carrier Abraham Lincoln in the Arabian Sea and redirecting USS Gerald R. Ford, a major warship, to the Middle East.
- Strait of Hormuz Exercises: Iran's Islamic Revolutionary Guard Corps commenced military drills in the Strait of Hormuz, a vital waterway for about 20% of global oil production.
- Ukraine Peace Talks: US-led discussions aimed at resolving the conflict in Ukraine are also scheduled in Geneva, though progress is expected to be challenging.
China's Crackdown on Illicit Gold Trading
Authorities in Shenzhen, a major gold hub in China, issued a stern warning against "illegal gold trading activities." These include mobile applications offering leverage to retail investors and online live streams promoting bullion sales. The warning also targeted deceptive marketing phrases like "gold prices will soar" or "make big money by buying gold," and the adulteration of materials resembling pure gold.
Market Inventories: ETFs and COMEX Trends
- Gold ETF Holdings: As of February 13, global gold ETF holdings reached 100.13 million ounces, an increase of about 1.18 million ounces year-to-date. These holdings are currently near their highest levels since August 2022.
- COMEX Inventory: Registered COMEX gold inventory fell to 17.57 million ounces on February 13, marking its lowest level in a significant period and a drop of over 27% from its peak of 24.25 million ounces last April.
Economic Data Roundup: Mixed Signals
Recent economic reports have presented a mixed picture globally:
- Japan & UK GDP: Japan’s annualized Q4 GDP growth was 0.2%, below the 1.6% estimate. The UK’s Q4 GDP also lagged expectations at 0.1% versus 0.2%.
- US Jobs Report: The January nonfarm payroll report was largely positive, with 130,000 new jobs (surpassing the 65,000 forecast) and the unemployment rate decreasing to 4.3%. However, investors remain cautious due to significant downward revisions of past payroll data, indicating much weaker job growth in 2025 than initially reported.
- US Retail Sales: Retail sales remained flat in December, missing the 0.4% forecast, after a 0.6% rise in November.
- US CPI Data: January's Consumer Price Index (CPI) showed subdued inflation, with headline CPI up 0.2% month-over-month (forecast 0.3%) and 2.4% year-over-year (estimate 2.5%). Core CPI increased by 0.3% month-over-month and 2.5% year-over-year. Despite this, a rate cut in March is not anticipated.
Dollar Index and Yields: Responding to Data
Despite some encouraging job data, the US Dollar Index recorded a weekly loss of 0.75% by February 13, closing at 96.91. Cooler-than-expected CPI figures weighed on the dollar. Currently, the Index is trading around 97.05, up about 0.15% for the day. Last week, optimism for future rate cuts, fueled by subdued US CPI data, led to a drop in US yields. The two-year US yields fell by nine basis points to 3.40%, their lowest since October 17, while ten-year yields reached 4.04%, their lowest since December 3.
CFTC Positioning: Investor Sentiment
According to CFTC data for the week ending February 10, money managers reduced their bullish gold bets by 400 net-long positions, totaling 93,038. This represents the least bullish stance in 16 weeks. Long-only positions also decreased by 1,053 lots to 116,157, the lowest in over 23 months.
Key Upcoming Events & Data
Investors should monitor several significant economic releases:
- US Data (Feb. 19-20): FOMC minutes, S&P PMIs, real personal spending, PCE Price Index, and University of Michigan consumer sentiment.
- Eurozone & UK (Feb. 20): PMI data.
- UK (Feb. 17-18): December job report and January CPI report.
- Japan (Feb. 20): January national CPI data.
Gold Price Outlook: Bearish Tilt Amid Uncertainty
In the immediate future, geopolitical events will largely dictate gold prices. Considering the recent US jobs report and a slight easing of some geopolitical concerns, gold appears somewhat stretched at its current levels. However, ongoing worries within the tech sector might limit significant downward moves. The US Dollar Index is struggling to gain momentum despite positive job and ISM reports, partly due to falling US yields. Any deal with Iran is likely to face obstacles and include strict terms, which could provide underlying support for gold.
Overall, gold is expected to trade within a range with a slight bearish bias, unless geopolitical tensions escalate further. The yellow metal may test support around $4900 (MCX Gold April Rs 152,000). A break below this level could bring $4850 (Rs 150,300) and then $4740 (Rs 147,000) into play. Resistance levels are identified at $5050 (Rs 156,500) and $5125 (Rs 159,000).
Silver Price Outlook: Tight Market Under Pressure
The silver market in China remains exceptionally tight, indicated by a backwardation of 354 Yuan/Kg in the near-to-second month spread. Despite this, silver is facing downward pressure from the potential for reduced geopolitical tensions and a stronger US Dollar. The white metal is projected to trade between $70 (Rs 218,000) and $84 (Rs 262,000) in the near term. A decisive breach of the $70 support level could encourage bears to target the $64 (Rs 200,000) support.
