It’s that time of the week and we’re back with our latest installment of Precious Metals Mondays 12-08-19, a look into how the metals market has developed over the past 7 days.
The precious metals have been on a wild ride recently as volatility across asset markets has caused important movements. Gold prices last week broke out to their highest levels since 2010 as the escalating trade conflict between the US and China intensified again. Following Trump’s surprise announcement of a fresh set of 10% trade tariffs due to be applied to another $300 billion of Chinese goods on September 1st, China then responded last week by sharply devaluing CNH. As a result, USDCNH rocketed higher, trading above the 7 level for the first time since the global financial crisis in 2008. In reaction to this, the US Treasury dept issued a statement labelling China a currency manipulator. China, which has not had that label applied since 1994, immediately responded with a counter statement denying the claims. These latest developments paint a very worrying picture with markets now very concerned that trade talks will be abandoned altogether ahead of the next scheduled meeting in September.
Over the weekend, leading investment bank Goldman Sachs issues a note to clients warning of the growing risks of a US recession as a result of the negative impact of the trade war. With equities starting the week on a soft footing subsequently, gold prices have kicked off the week higher once again. Looking ahead this week, US CPI will be closely watched, with any weakness likely to fuel further upside in gold. Later in the week US retail sales and U. of Michigan Confidence will also be watched.
The rally in gold prices continues to trade fresh highs. The break above the 1472.06 level last week was an important turning point and focus is now on a test of the major 1522.75 level which was the 2012 and mid 2011 lows in gold. The level has not been retested since it was broken in 2013 and is likely to find sellers at first test. However, while above the 1472.06 level, focus remains on further upside.
Silver prices have also been on the rise recently with price last week breaking out to its highest levels since early 2018. Alongside the growing trade war tensions which have boosted safe haven inflows, the precious metals have also been boosted by a fresh wave of central bank easing, headlined by last week’s unexpected .50% cut from the RBNZ. Indeed, with US forecasts starting to turn heavily lower, the prospect of further easing from the Fed is likely to keep metals supported in the near term. The ECB is expected to announced fresh easing at its September meeting and with the UK due to leave the EU on October 31st, the potential for BOE easing before year end is also high, again supporting metals.
The recent rally in silver saw price exploding above the 78.6% retracement from 17.3336 highs which has been capping price recently. The market is now sitting just shy of those mid 2018 highs trading 16.9730 last and while above the broken 16.5877 level focus remains on further upside in the near term. Only a move back below the 16.5877 level will assuage the near term bullish bias.