Gold Prices Rise As Risk Rout Continues
Weekly Metals Wrap
The yellow metal has enjoyed some mild upside this week as traders have taken advantage of the risk off environment and weaker US dollar. Risk markets were rocked this week by a double blow from President Trump. He announced that the current 10% tariff on $200 billion worth of Chinese goods would be increased to 25%. As of today, it has now been officially implemented. Given the ongoing negotiations between the US and China, the announcement was completely unexpected.
Since December last year, the two economic superpowers have been locked in talks. The original March 1st deadline for increasing tariffs had been postponed by Trump given the progress being made. Speaking over the last few weeks, Trump said that he was confident an “epic deal” would be done in as soon as four weeks.
However, Trump has since said that the Chinese broke the terms of the talks and were trying to renegotiate. Sensing that the Chinese were simply stringing the US along Trump has now made an aggressive move. Many fear this will reignite the trade war and weigh on global growth once again.
China has announced plans to retaliate with its own trade tariffs. However, Trump has also threatened to tariff the remaining $267 billion of Chinese goods imported to the US each year. Due to this, it is not clear yet whether China will follow through with retaliation. Chinese trade negotiators are currently in Washington for a further round of trade talks. Many are fearing that these talks could break down in light of Trump’s intimidation tactics.
Following this news, the market was then shunted further lower by news that the US will deploy warships to the Middle East. This is an attempt to deter Iran from any acts of aggression following vague threats made following President Rouhani’s announcement that the country will no longer honor the nuclear agreement made with the US.
Gold prices continue to trade within the corrective bearish channel from March highs. They have recently found support once again at the 1280.58 level. This level has been a major pivot for gold this year. Bullish RSI divergence highlights the risk of a break higher here and the continuation of the longer term bullish move, putting the focus on a run up back to 64.38 next.
The silver market has broken its correlation with gold this week trading heavily lower as US equities have collapsed. Given silver’s frequent industrial usage, the metal is often influenced by equity prices. In particular, the Dow Jones. The index has traded sharply lower this week, breaking back below the 26024.1 level on world growth fears.
The trade war last year was responsible for a sharp drop off in global growth. This was highlighted by many central banks, the IMF and the OECD. Over the last few months growth has been recovering given the better risk atmosphere as a result of US/China negotiations. However, with Trump having raised tariffs on Chinese goods and China threatening to retaliate, there are concerns that world growth could once again start to trend lower.
Silver prices now look set to close below the 14.9161 level for the first time since last year as the sell-off continues. Two bullish pin bar weekly candles formed over the two prior weeks are still valid. However, the potential for a recovery higher remains a risk, until last week’s lows are broken. On the other hand, in the near term, it seems that further declines are likely.