Resurgent US Dollar Sends Metals Crashing Lower
Weekly Metals Wrap
The yellow metal has been heavily sold this week as a resurgent US dollar and still buoyant risk appetite have attracted investor attention elsewhere. The US dollar has continued its rally in the wake of the FOMC meeting held this week,
The meeting saw the bank keeping rates on hold as expected, though with a much more balanced tone to the statement. While the bank cited subdued inflation as a reason for keeping rates on hold, it did note that the economy has been growing at a solid rate.
At the last meeting, the prospect of further rate hikes was mentioned for the first time in months. In light of recent US data strength, this has fuelled a bid tone to the greenback. Traders will now be keen to receive the minutes from this month’s meeting to see whether further such discussions took place.
The NFP is due later today, along with wage growth and the unemployment rate. The latter will be the final key piece US data of the week. While the NFP’s are forecasted to have ticked down slightly, any print around the 190k region should keep USD firm, especially if wage growth rises over the month as expected.
Gold prices continue to trade lower within the bearish channel from year to date highs with price once again testing the 1266.54 level (year to date low). With price now back below the key 1280.58 level, focus is on further downside with a break of current lows. This opens the way for a test of the channel low with next structural support coming in at 1250.41.
Silver prices moved dramatically lower this week breaking down to levels not seen since December 2018. This comes as a result of the weight of the US dollar as well as better risk sentiment which has knocked precious metals lower. Equities investors remained bolstered by the ongoing US/China trade talks. These look likely to provide a deal in the coming weeks.
Silver is typically boosted by higher equities prices given its frequent industrial usage. But, for now, the rising USD has kept prices very pressured. Forecasts for higher prices for silver made over the last year due to increased demand from the auto sector have fallen flat in the face of the current sell-off. This has put an end to the recovery made over the last months of 2018 and early months of 2019.
Following a sharp dip below the 14.9161 level last week, we then saw price quickly recovering to close the week back above the level. However, this week price has moved lower within conviction, breaking own below the level as well as last week’s lows. The next stop is the 14.3321 support. This comes in just ahead of the 14.0352 level which is a major, long term level in silver. If broken, it could pave the way for a much larger bearish trending move. Any retest of the broken 14.9161 level is likely to find sellers, keeping focus on further downside.