The yellow metal continued to explode higher this week as weakness in the US dollar was further exacerbated by soft data.
Earlier in the week, US CPI for May came in lower than projected at 1.8% vs 1.9% expected on the headline reading and 2% vs 2.1% expected on the core reading. The data comes on the back of comments from Jerome Powell.
The Fed Chair warned the market last week that the Fed stood ready to act as necessary to backstop the economy should the negative impact from Trump’s escalating trade war start to weaken activity.
Other Fed members have echoed Powell’s comments. Recently, St Louis Fed President James Bullard said that a rate cut “may be warranted soon”. Even Chicago Fed president Charles Evans highlighted that “solid fundamentals” in the US have said that the Fed should alter its policy approach “if that’s necessary”.
Recent data has taken a turn lower in the US. The manufacturing PM hit a 10-year low last month. This fuelled fresh concerns over the impact of Trump’s ongoing trade policies. Traders now await the Fed’s monetary policy meeting next week for further details on whether easing is coming.
Expectations of easing have helped negate some of the offsetting effects in gold. These include the surge in equities prices over recent weeks. Typically, in such conditions, gold prices would be heavily lower due to reduced safe-haven demand. However, given the impact of the weaker USD over recent trading, gold has seen a fresh explosion in long positions.
The rally in gold prices this week has seen price breaking out to fresh 2019 highs. Price is now sitting firmly above the 1346.59 level. Above here, the focus will be on a further grind higher. The 1366.05 level is the next area to watch in gold, which was the 2018 high. A break above this region could spell the start of a major shift in gold sentiment and the prospect of much further upside to come.
Silver prices have been higher this week too as the weaker USD has seen much better levels. Not only have higher levels in gold supported silver, but surging equities prices have also kept silver well bid. This comes as expectations of forthcoming rate cuts from the Fed have seen equities traders flooding back into long positions.
Given silver’s frequent industrial usage, higher equities often underpin the metal. Market pricing for US rate moves has now swung decidedly in favor of rate cuts as we look further out on the year. From earlier in the year suggesting rate hikes to come over summer, the CME Fed Watch tool now shows that the market is pricing a rate cut by July/August.
Silver prices are trading back above the 14.9161 level this week, making their second attempt at holding above the level of the last fortnight. While above here, focus is on a grind back up towards the major 15.6351 – 15.7342 level which hasn’t been tested since March.