Precious metals pull back on Commodity Index rebalancing – OCBC

Precious metals including Gold and Silver saw a pullback overnight amid annual rebalancing of major commodity indices including the Bloomberg Commodity Index which began on 8 January over the next 5 business days. For this round, the adjustment process using pre-defined rules based on factors like liquidity and production data will see the index normalize the weights of Gold and Silver lower after the sharp rally in 2025 resulted in their actual index weights drifting above benchmark targets, OCBC's FX analysts Sim Moh Siong and Christopher Wong note.

Gold and Silver selling seen as mechanical, not fundamental

"The rebalancing will hence trigger mechanical and price-insensitive selling from funds that track commodity benchmarks as they restore weights and should not be misinterpreted as a shift in fundamental story. Nevertheless, the process can create a temporary price distortion for Gold and Silver. But at the same time, market participants who have been questioning the sustainability of the precious metals’ rally may use this rebalancing exercise to gauge if prices of Gold and Silver still hold up despite the mechanical headwind."

"Momentum is flat while RSI slipped. Near term support at 4393 (23.6% fibo retracement of Oct low to Dec peak), 4368 (21 DMA) and 4296 (38.2% fibo). Resistance at 4500, 4550 levels (recent high). For Silver, bullish momentum on daily chart shows signs of easing while RSI fell. Risks somewhat skewed to the downside. Support at 75 (23.6% fibo retracement of Oct low to Dec peak), 70.60 (21 DMA). Failure to hold above these levels may open room for further pullback."

"Price action requires further monitoring. Resistance at 82, 84 levels. Technically, this may see XAU/XAG normalise higher after the sharp selloff. Bullish divergence observed in daily MACD while RSI rose from oversold conditions. Resistance at 62, 62.30 levels (21 DMA, 23.6% fibo retracement of the sell off from Oct to Jan), 66.50. Support at 54.33 (double bottom)."