Trade Hopes Weigh on Gold
weekly metals wrap
Despite some two way action, gold prices are ending the week in the red, as of writing. Earlier in the week, gold prices were weighed down by a firm recover in risk sentiment. It had improved in response to better relations between the US and China. Equities initially rallied on the news that the next set of Trump’s tariffs are postponed for two weeks. This was in line with reports that China was considering US agricultural purchases.
Later in the week, this theme developed further. Reports highlighted that the Trump administration is now considering offering China a limited trade deal. This would postpone further tariffs and even roll back some of the tariffs already in place. This would be in exchange for a commitment to intellectual property as well as agricultural purchases.
On Wednesday Trump announced that a 5% levy increase which was due to take effect as of October 1st, would now be postponed for two weeks. Trump said that China had asked for the delay and are also making plans to remover some of the tariffs on US goods. China released a list of 16 US imports which will now be exempt from tariffs. This includes anti-cancer drugs and animal feed.
Writing on Twitter, Trump said:
“on October 1st, we have agreed, as a gesture of goodwill, to move the increased Tariffs on 250 Billion Dollar’s worth of goods (25% to 30%), from October 1st to October 15th”
News of Trump’s postponed tariffs comes ahead of the next round of US/China trade talks due this month. The markets are now hopeful that a deal (even a partial deal) can be done. The negative impact of the nearly two-year-long trade war has been clear around the globe. As central banks roll out fresh easing to deal with the global downturn there is even more pressure on both sides to return to normal trading conditions.
The sell-off in gold this week, which saw the rejection from 1522.75 continue, has now taken gold back below the upper line of the bullish channel running from 2015 lows. While gold remains capped by the 1522.75 level, a further retracement lower could be in store. While above the 1434.81 highs, the focus remains on a further grind to the upside.
Silver prices have broadly tracked the moves in gold this week. Prices have come under pressure as risk sentiment improves, though are fighting to stay in the green as of writing. Indeed, expectations of a Fed rate cut this month and the potential for a weaker USD, are offering some support in the near term.
Additionally, downside linked to its relationship with gold is being partially offset by higher equities prices. This is given silver’s frequent industrial usage. Optimism over an interim US/China trade deal is helping keep equities prices well bid into the end of the week, lending some support to silver also.
The burst above 18.6404 last week proved short-lived with price quickly retreating back below the level. However, the subsequent downside move has not broken back below the 17.6936 level. Above here, the focus is on a further push to the topside in the near term.