Silver Explodes on China Trade Hopes

weekly metals wrap

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Gold

Following an initial break higher on the week, gold prices reversed lower to the end the week in the red.

Gold this week has largely been moving along with the changes in US-China relations.

We kicked off the week with China announcing a fresh set of 10% tariffs on a further $75 billion of US goods. This was in retaliation for Trump’s fresh tariffs due to take effect on September 1st. Trump then issued a swift counter-threat, promising to raise tariffs again. Taking to Twitter, the president wrote:

In light of this severe escalation, gold gapped higher at the open of the week, with equities having come off sharply amidst a wave of risk aversion. However, on Monday, Trump seemed to completely shift his approach. Making his final comments at the end of the G7 meeting in Biarritz, Trump said that there had been phone calls between the two nations and praised Premier Xi as a “great leader” (having labelled him “an enemy” only days earlier,) and said he was confident the two countries would deliver a “great deal” very soon.

Gold prices came off in response to this more moderate tone as risk sentiment recovered. This led to equities rising higher and sapping safe-haven inflows. Further into the week, this dynamic intensified. This was due to comments made by Gao Feng, a spokesman for the Chinese Ministry of Commerce. The spokesman appealed for calm and said that China would refrain from imposing fresh tariffs in retaliation to the US, instead of saying that the country wishes to see an end to the trade war.

Negotiators from the two countries are due to meet for a further round of face to face trade talks in just two weeks. The market is now hopeful that this meeting will deliver more progress than last time around. If this should be the case, gold will likely come of further as risk sentiment strengthens. However, the situation remains fragile and there is plenty of upside risk for gold should talks breakdown or should there be any further tariff threats made.

Technical Perspective

xauusd chart

The rally in gold this week has seen price making further headway towards testing the 1568.44 level which is the next key resistance. For now, however, price is seeing some retracement lower. It is currently fighting to stay above the 1522.75 level which is a major pivot for gold. While above here, focus is on a further grind higher. Back below here, however, we could see a deeper move down to the 1439.08 level.

Silver

Silver prices have broken their correlation with gold prices this week. Instead, they have exploded to the topside, trading up to test the 2017 highs. With silver’s frequent industrial usage, it often benefits from upsides in equities, particularly the industrial index which has surged higher this week. The prospect of a trade deal between the US and China is firmly bullish for silver and should keep prices supported in the near term.

Technical Perspective

xagusd

The rally in silver this week has seen price trading all the way up to test the 18.6404 2017 high, having started the week below 17.6936. While we might see some further retracement from the 2017 high, which is holding for now. While above the 17.6936 level, focus remains on a further push higher.

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