Gold & Silver Market Analysis for Wednesday 19th January

Kinesis Macroeconomic Analysis

Inflation is dominating the market narrative today after the UK reported inflation running at its highest level in almost 30 years. The UK’s inflation rate for December was 5.4%, exceeding market expectations of 5.2%, illustrating that the cost of living is rising at its fastest pace since 1992. 

Further evidence of how global a problem inflation is becoming, will come later today with Canada also reporting its December figure. If Canada’s inflation rate were to also exceed market expectations of 4.8% then this would be further evidence that rising prices are far from transitory, and a lasting problem for central banks to tackle.

The Bank of England has already raised interest rates once but with inflation running hot, the likelihood of more hikes in the very near future has increased sharply. 

While the UK may be the country in focus today, it is not alone in coming under pressure to switch away from the dovish environment that equities markets have benefited from for so long. In the US, Treasury yields are rising with expectations that they will break through the 2% level, as traders increase their bets that the Federal Reserve will be forced into a significant interest rate increase in March. 

There are further signs that the stock market party may be overcome by Goldman Sachs disappointing results. As the economic outlook evolves, expect tech stocks and those most geared towards future growth to come under the most pressure, with investors preferring to have their jam today.

Kinesis Gold Price Analysis

Gold is stuck between a rock and a hard place. On the one hand, a high inflation environment should prove positive for gold with the precious metal considered a hedge against rising prices.

However, with central banks across the world expected to increase interest rates to tackle inflationary pressures, this presents a headwind for gold.

This contrasting outlook helps explain why the price of gold has barely moved for a couple of months now despite inflation being the talk of the town.

As long as no clear new narrative arrives to change the outlook, expect gold to continue to doggy paddle along in its current lane of  $1,800-$1,820 an ounce for a while longer yet.

Kinesis Silver Price Analysis

While gold may be proving a dull asset currently, silver is catching the eye. Breaking through resistance at $23 an ounce has seen a rush of new buying with silver now marching up towards $24.

The spike was triggered by the New York Empire State Manufacturing Index which rocked markets by turning negative for the first time in 20 months, sparking a rush of traders to unwind short positions on the metal. 

With silver continuing to gain sharply this morning, the market will be following price moves closely to see if this is just a flash in the pan or the start of a sustained push, bringing back memories of last year’s WallStreetBets-inspired squeeze on the metal.

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Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News. 

As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.