Gold ended the shortest month of the year looking for renewed direction last week, following recent sideways moves and losses in the early weeks of February. Technically gold has tried to build some upside momentum: market psychology may be helped in that prices managed to advance over past the week, the first advance in over a month. For market bulls though, patience is still a pre-requisite as the timing of a rise in US interest rates, the performance of the dollar and the euro and the drag of oil prices on commodities as an asset class present a serious uphill challenge. There is no unanimity in sentiment and new highs in several key equity indices suggest that attentions are largely elsewhere for the time being. Economic data also lends little to establishing any form of consistently strong directional view. A more appropriate evaluation of risk will emerge but timing is everything. At the start of the week gold was testing $1200 on the downside but found some support as China returned from New Year’s festivities. The reality is though that many jewellery factories in Hong Kong only opened towards the end of the week and in the mainland many will only re-start on March 2. A rise in Euro gold prices encouraged some buying among European investors’ midweek but rallies tend to also trigger some metal returns. In Europe, after the strong investor interest of January, buying in February was more in line with year-ago levels. There will be keen interest to see how India’s budget and any tariff changes around gold will impact demand in this key consumer: January imports had already jumped to 57.2t, up 55% year-on-year.
Before jumping higher Friday afternoon silver had been heading for a pretty much flat performance over the course of the week. Looking for direction, like gold, silver needs a close above $16.60 to build to the upside. The price is though still well under both the 100 and 30-day moving average and there is a risk of renewed weakness, especially compared to gold where the ratio hovers around 73 still. That said, ETF silver holdings have reached a year-to-date high despite the relative attraction of strong equity markets. US dollar strength continues to undermine silver and that looks unlikely to reverse for a while although. The yield on Portuguese debt fell below the US equivalent this past week raising some interesting questions about risk valuations. In the coming week markets will undoubtedly be watching the ECB closely on Thursday and paying attention to economic data from China early in the week for any further signs of a slowdown.