Precious Roundup: Gold, silver up on risk aversion after Trump orders push stocks, dollar down

Risk aversion after Trump's specific travel bans aided gold and silver rally while platinum and palladium pared some of last week's gains.

Gold bars
Gold and silver up on Monday helped by risk aversion. Reuters

Gold and silver gained on Monday (Jan 30) as concerns in global markets after Trump revealed specific travel bans led to risk aversion and selloff in the US dollar. Platinum and palladium, however, dropped on the first day of the week.

Gold futures rose more than 0.7% on the day to $1198.10 while silver rallied to $17.29 from $17.13 before paring some of the losses later in the day. Platinum slipped 0.8% to $980.45 and palladium plunged 1.7% from Friday's close to $726/ounce.

US president Donald Trump signed an executive order last Friday, suspending entry of people from seven Muslim-majority countries for 90 days and suspending the refugee program for 120 days.

Nikkei was down 0.56% and bourses of Muslim countries like Malaysia, Indonesia and Bangladesh were also down visibly. European indices FTSE100 and DAX were down more than 1% and major US indices Dow Jones and S&P 100 were down nearly by the same margin.

The market is now waiting for more clues from the Federal Reserve policy review next Wednesday (Feb 1) especially in the backdrop of the incoming trade policy indications from the new Trump administration and after the disappointing Q4 GDP data on 27 Jan.

The Previous Week

Gold and palladium fell sharply in the week with riskier assets like stocks rising while silver kept the upward momentum helped by more industrial applications being developed for it. Platinum too was resistive to the dollar rally.

Gold for February delivery ended a 4-week gaining streak that had taken it to a 2-1/2-month high of $1219/ounce on 24 Jan and ended 1.36% down at $1188.10/ounce in the week.

The US Federal Reserve will announce its monetary policy next week, the first under the Trump government, and following the December decision in which the Feds funds rate was raised to 0.75% from 0.5%.

Analysts do not expect a change in the rates this time but will be looking for the central bank comments, especially amid hopes of fresh stimulus measures to boost the world's largest economy.

Stimulus hopes have been driving risky assets higher and dollar down over the past several weeks, and the USD index, a gauge that capture's the greenback's strength against six major currencies in trade terms, has ended its fifth straight week down.

Moving off a 14-year high of $103.81 touched earlier this month, the index ended at $100.53 in the week to Jan 27, which is a strong support level. A break below that can potentially hold it in the 2015-2016 range of 92.5-100.5.

All major stock indices, meanwhile, continue to trade near fresh highs this week. Dow Jones average was up 1.45% and S&P 500 up 1.26% this week.

Technically, the current level is a medium term support for the yellow metal, and if this week's slide brings the downtrend from July's 2-year high of $1374.90 back to the picture, then the next level to watch will be $1123.90, the 10-month low hit in December.

New Use For Silver

Silver closed the week 0.6% higher at $17.13, extending the upward move from December's 8-month low of $15.67, making the gain so far this year 7.18%.

Silver managed to outshine the yellow metal mainly helped by fresh industrial demand for it, the latest being car maker Volkswagen's new windshields that include an ultra-thin invisible layer of silver connected to the vehicle's electrical system so that it heats up and melts away ice.

Silver thus replaced copper in that application as the same purpose was earlier met by near-invisible copper wires. Analysts expect this technology to be applied by more automotive companies increasing the demand for physical silver.

Although silver was known as a better heat conductor than copper, price advantage had been helping the latter. But now with more efficient use of technology, the former is preferred, given its capacity to better serve the purpose. In the Volkswagen's case, for instance, silver is more effective in heating the windscreen and decreasing glare on it.

Still, charts show more challenges to silver in its upward journey as this week's gains has not helped to break the broader downtrend in place since July last year. Only a break above $18 will weaken that trend.

A failure to break through the $17.50-$18.0 range in the coming days will throw light on the downtrend again, and then the levels to will be the December trough followed by the $15-$14 range.

The PGMs

Platinum ended 0.67% higher in the week at $988.45/ounce, in line with the silver performance. With the gains this week, the metal is 8.4% firmer so far this year, making it the best performing precious metal during the period.

Palladium for March delivery moved off a 20-month high of $798/ounce and plunged 6.7% in the week to $738.6. But the reversal from the 5-year low of $458 since January last year is still in place, and technically, only a break below $650 will threaten it.