Metals Hit Fresh Highs On Recession Fears
Weekly Metals Wrap
It’s been another solid week for the precious metal. Gold has broken higher into levels not seen since early 2013. However, there has been some volatility.
Earlier in the week, prices crashed lower from testing the long term 1522.75 level. This came as the US Treasury Dept issued a statement highlighting that some of the goods due to be under new the new 10% tariffs from September 1st, would now be exempt until December 15th. The news caught the market off guard, causing a wave of relief across asset markets. It also sent equities surging higher and safe havens tumbling lower.
However, the optimism around the announcement was short-lived. Equities soon returned to trading to the downside as the market focus shifted towards growing fears of a global recession.
Earlier in the week, data out of the eurozone showed German GDP contracting in Q2. This put the second-largest economy in the eurozone on the brink of recession for the first time in a decade. This comes on the back of a raft of weak sentiment data out of Germany recently, with Ifo readings suggesting the economy is already in recession.
Later in the week, focus shifted to the US where movements in Treasury yields raised red flags. The yield on 2Y USTs moved above the yield on 10Y USTs for the first time since 2007. This move historically tends to precede a recession in the US.
Fears over the health of the global economy are being fuelled by the ongoing trade war between the US and China. And the uncertainty over the implications of a no-deal Brexit is definitely adding to this. In light of this, the outlook remains positive for gold, with both the Fed and the ECB expected to announce further easing in the coming months.
The rally in gold this week has seen price breaking above the 1522.75 level. This is a major long term level in gold. It’s been the lows in 2012 and mid-2011 and has not been retested since it broke in 2013. Despite some initial selling, price is now holding above the level putting focus on a test of the 1566.15 level next. If we reverse lower from here, bulls will be looking to use a retest of the 1433.58 level as support.
Silver prices have been equally buoyant. Prices tracked the moves in gold this week to break to their highest levels since early 2018. Indeed, they came just short of testing the 2018 highs.
Weakness in the USD, in light of growing Fed easing expectations, is also helping keep the metals underpinned. Furthermore, despite this week’s announcement, the trade relations between the US and China remain incredibly volatile. Expectations are low for a deal in the near future which again, should keep metals supported via safe-haven inflows.
Silver prices surged further higher this week with the market breaking briefly above the 17.3336 level. However, price has backed down somewhat since testing the level. While above the 16.5877 level, focus remains on further upside, with the 2018 highs of 17.6936 the next key level to watch.