Gold prices were higher last week as a combination of risk aversion and renewed Fed easing expectations drove inflows for the precious metal. US data last week highlighted concerning weakness in the US economy. The ISM manufacturing reading printed its lowest level of the last ten years over September, remaining in contractionary territory for a second consecutive month. The data has shined further light on the damage suffered by the US economy as a result of the ongoing US – Sino trade war. While the two sides are due to meet on October 10th for another round of face-to-face trade talks, the market is wary of the risks that talks will prove unfruitful. Gold buying has been a preferred play recently while equities markets saw losses last week on worries for the global economy. The UK, EU and US have each seen factory activity readings in negative territory over recent months highlighting the damaging impact of the trade war on global manufacturing. The WTO has now downgraded its growth forecasts for the year in light of the ongoing trade tensions.
As a result of recent data weakness in the US, the market is now reviving pricing for further 2019 rate cuts which is also helping keep gold supported. Gold prices were lower after the September FOMC as three voting members opposed the rate cut. This dissent raised questions over the prospect of further rate cuts this year. However, given the recent downturn in data, the market is now putting higher odds on a further Fed rate cut with some investment banks now calling for an October rate cut. The FOMC meeting minutes this week will be closely watched by traders although given the severity of the data slump recently, they might have lost some of their relevance.
Silver prices were higher last week also, in line with recent upside in gold. The key drivers for silver continue to be the backdrop of fluctuating expectations around continuing US – Sino trade negotiations. Silver price have been heavily lower over the summer as fresh trade tariffs weighed on sentiment. The recent drop in US industrials has also hit silver although the increasing likelihood of a further rate cut from the Fed over the remainder of the year is keeping the market supported.
Technical & Trade Views
XAUUSD (Bullish above 1492, bearish below)
XAUUSD From a technical and trade perspective. Price is trading above the monthly pivot for now with longer-term VWAP indicating further bullishness. Additionally, Momentum studies are also signalling room for further a pickup higher. The key level to watch in the short term will be the monthly R1 at 1530.26, if price holds a test of this level we could see a short-term double top taking prices lower. On the other hand, if we break above that level I will monitor a retest for long opportunities.
XAGUSD (bullish above 17.50, targeting 19.50)
XAGUSD From a technical and trade perspective. Silver retested the yearly R1 and is holding back above it now. While we hold here, a move back into the yearly highs remains the objective. Longer-term VWAP still supports with momentum studies showing room for further appreciation also.
Please note that this material is provided for informational purposes only and should not be considered as investment advice. The views discussed in the above video are those of our analysts and are not shared by Tickmill. Trading in the financial markets is very risky.