Gold

Gold prices have started the week a little lower despite some initial risk off movement at the open which came in response to news that the Trump administration has activated $15 tariffs on around $110 billion worth of Chinese goods. The products affected by the new tariffs are mainly consumer goods, ranging from home textiles footwear through to tech products such as the Apple watch. A further batch of goods, totalling roughly $160 billion, including electronic items such as laptops and cell phones, will also come under 15% tariffs as of December 15th in line with the delay announced by Trump recently. Speaking with reporters at the time, Trump said that he was delaying part of the tariffs as a gift to US shoppers, to avoid increasing costs during the Christmas shopping season.

China immediately reacted to the tariffs with tariffs of its own on a range of $75 billion worth of goods. In true fashion, China responded with increased tariffs of its own, in line with Trump’s higher tariffs. The new tariffs include a further 10% on American pork, beef, and chicken, and a range of other agricultural goods. Soybeans have also had an extra 5% tariff applied on top of the existing 25%. Starting in mid-December, American wheat, sorghum, and cotton will also have a further 10% tariff applied. Finally, a new 5% levy on U.S. crude oil will take effect in September.

These developments are a worrying sign, particularly the escalation in Chinese retaliation which flies in the face of comments made from Chinese Ministry of Commerce spokesman Gao Feng, who said last week that “We firmly reject an escalation of the trade war, and are willing to negotiate and collaborate in order to solve this problem with a calm attitude”. Feng added “China has plenty of means for countermeasures, but under the current situation, the question that should be discussed right now is about removing the US′ new tariffs on $550 billion Chinese goods to prevent escalation of the trade war,”

The market is now fearful over the prospect of the next round of scheduled trade talks taking place in September. If the talks fall through, this would cause major safe haven inflows for gold and be firmly bullish.

Technical Perspective

The move higher in gold has been losing momentum over recent weeks with the RSI indicator flagging strong bearish divergence. For now, price is hovering around the 1522.75 level which remains the key pivot. Below here and focus is on a move back down to the 1439.08 level while to the topside, 1568.44 remains the key level to watch.

Silver

Silver prices have paused for now also, with the recent rally having traded up to test the 18.6404 2017 highs. The escalation in the trade war over recent weeks has provided steady safe haven inflow for precious metals, which have also been boosted by the rising prospect of a further easing announcement by the Fed. For now, the main driver remains the US /China trade story with the focus on whether the next round of planned trade talks will take place.

Technical Perspective

Following the break of the long term bearish trend line, Silver prices have been capped by the 18.6404 2017 highs for now. While some further retracement lower is possible, focus remains on a further grind to the upside while price stays above the 17.6936 level. Back below here and focus will shift to a retest of the broken trend line next.

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