Editor’s Note
The dollar index edged lower today, pressured by falling Treasury yields and a rally in the Chinese yuan. Losses were contained by lingering support from Wednesday’s strong U.S. jobs data.
The dollar index (DXY) is down -0.04% today. The smaller-than-expected decline in weekly US jobless claims and the larger-than-expected drop in January existing home sales pushed Treasury note yields lower, weighing on the dollar. Additionally, strength in the Chinese yuan, which rallied to a new 2.5-year high today, is pressuring the dollar. Dollar losses are limited by some carryover support from Wednesday’s better-than-expected US January payroll report, which dampened speculation of additional Federal Reserve interest rate cuts.
US weekly initial unemployment claims fell by -5,000 to 227,000, indicating a slightly weaker labor market than the expected 223,000.
US January existing home sales fell -8.4% month-over-month to a 16-month low of 3.91 million, weaker than the expectation of 4.5 million.
The yen rallied to a 2-week high against the dollar today, boosted by carryover support from Tuesday when Japanese Prime Minister Takaichi eased fiscal concerns by stating any tax cut on food sales would not require an increase in debt issuance. Lower Treasury note yields today are also supportive of the yen.
Gains in the yen are contained after today’s rally in the Nikkei Stock Index to a new record high, which reduced safe-haven demand for the yen. Additionally, the smallest year-over-year increase in Japanese producer prices last month is dovish for Bank of Japan policy and negative for the yen.
Japan’s January PPI rose +0.2% month-over-month and +2.3% year-over-year, right on expectations, with the +2.3% y/y gain being the smallest year-over-year increase in 1.75 years.
April COMEX gold (GCJ26) is down -10.30 (-0.20%), and March COMEX silver (SIH26) is down -1.135 (-1.35%).
Gold and silver prices are moving lower today. Today’s strength in stocks has reduced safe-haven demand for precious metals, weighing on prices.
Silver is under pressure after US January existing home sales fell more than expected to a 16-month low, a negative factor for industrial metals demand. Concerns about Chinese industrial metals demand are also weighing on silver prices, as Chinese markets will be closed for more than a week during the Lunar New Year holiday starting Monday. However, shrinking silver supplies in China are supportive for prices, as silver stockpiles at warehouses linked to the Shanghai Futures Exchange fell to a 10-year low on Monday.
Dollar weakness today is supportive for metals prices. Lower global bond yields are also bullish for precious metals. Escalating tensions between the US and Iran are boosting safe-haven demand after Axios reported on Wednesday that the US could send a second aircraft carrier strike group to the Middle East should nuclear talks with Iran fail.
Precious metals are supported by safe-haven demand amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East, and Venezuela. Additionally, precious metals are surging as the dollar debasement trade gathers steam. Late last month, President Trump said he was comfortable with the recent weakness in the dollar, which sparked demand for metals as a store of value. US political uncertainty, large deficits, and policy uncertainty are prompting investors to cut holdings of dollar assets and shift into precious metals.
Strong central bank demand for gold is also supportive of prices. Bullion held in China’s PBOC reserves rose by +40,000 ounces to 74.19 million troy ounces in January, the fifteenth consecutive month the PBOC has boosted its gold reserves.
Increased liquidity in the financial system is boosting demand for precious metals as a store of value, following the FOMC’s December 10 announcement of a $40 billion-per-month liquidity injection into the US financial system.
Gold and silver plunged from record highs on January 30 when President Trump announced he had nominated Kevin Warsh as the new Fed Chair, fueling massive liquidation of long positions. Mr. Warsh is seen as a hawkish candidate less supportive of deep interest rate cuts. Recent volatility has also prompted trading exchanges worldwide to raise margin requirements for gold and silver, leading to further long position liquidation.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.5-year high on January 28. Long holdings in silver ETFs rose to a 3.5-year high on December 23, though liquidation has since knocked them down to a 2.5-month low last Monday.