Precious Metals Break to Fresh Highs
Gold Bulls React to Policy Guidance and Geopolitical risks
Gold climbed above $1,400/oz today, perhaps for a false weekly break. It set up for the fourth weekly winning streak on the back of a dovish Fed and increasing geopolitical risks. The yellow metal opened the week near $1340/oz on Monday, June 17. This makes it nearly impossible for it to turn bearish in the few hours left.
The precious metal had marked a 5-year high on Thursday, just cents shy of the psychological level. This came after Wednesday’s FOMC meeting.
Policymakers are now leaning significantly dovish as US economic growth continues to slow according to economic indicators. This helped the yellow metal soar to fresh weekly highs above $1400/oz.
The markets have continued to react aggressively since the Fed. This is thanks to tensions in the Iranian territory increasing. Iran’s military reportedly shot down a US military drone. As if that wasn’t enough, media sources reported that Iran also struck a missile on a Saudi Arabian water plant.
Fed Priced in For Two Rate Cuts Now
History indicates that a 0.25 basis points cut may not be enough to stabilize the US economy after this aggressive hiking cycle. Participants have factored a 100% cut in July’s meeting. However, we can expect the Fed to either go with a 50-point cut in the next meeting, or 25 in the next meeting and another 25 on September 18.
Traders and investors now worry both about the Fed’s language and also about the latest piece of data in the US. The dollar was sold off massively over the past few sessions as an array of weak data increased economic uncertainties.
Philly Manufacturing Disappoints at the Wrong Time
The gold call was a relatively easy one to make. Especially when factoring in the list of uncertainties including a dovish Fed, Iran-US escalation, the US-Sino trade war and now, US economic indicators.
Philadelphia’s Fed manufacturing index fell to near zero on Thursday. Economists had expected a figure of 12.6 but the activity index fell short to only a figure of 0.3. The sentiment report supported expectations of a rate cut as the decline reflected muted optimism for the rest of 2019.
Safe Haven Status Restored As US-Iran Conflict Escalates
On Thursday, the Islamic Revolution Guards Corps (IRGC) reportedly shot down a US military drone near a vital oil shipping lane.
US officials had blamed Iran for the two oil tank attacks on the Gulf of Oman earlier in the week. However, the IRGC said that the drone was attacked and taken down after violating Iran’s airspace near the Strait of Hormuz.
Following the drone shootdown, Trump said that the US “will not stand for it” and posted on his twitter that “Iran made a very big mistake”. The interference allowed gold to jump higher as concerns over military confrontation rose.
Gold Breaks Multiyear Bearish Pattern
The rally above $1400/oz could just be short-lived. However, it is likely to be revisited shortly given the break of an impressive bearish pattern.
Despite a number of previous infections occurring over the past 5 years, without a significant upside, this bullish run isn’t falling flat after breaking outside a cap and handle pattern as well as a long-standing triangle.
Silver Also Up, Remains Within Corrective Pattern
Silver rose to a fresh 2019 high above $15/oz for the week ending June 21st. However, it has remained within the triangle pattern, keeping the upside limited to $15.60/oz for now.
With a double bottom near $14/oz and two optimistic weeks over the period of the last month, the chances of a breakout are increasing. Adding to that, the May 27 correction down to 78.6% Fibonacci makes this bullish scenario more aggressive.