USD Sell-Off Reverses Gold Losses
weekly metals wrap
Gold prices were initially down for a fourth consecutive week this week as improved risk appetite across the week dampened demand for the yellow metal. However, a weaker US dollar over the course of the week’s trading helped stem the declines and has seen XAUUSD recovering off the week’s lows.
Gold prices had a muted start to the week despite the major moves seen in oil at the week’s open. News of a drone strike at the world’s largest oil processing site in Saudi Arabia sent crude prices skyrocketing higher by over 20%. The strike wiped around 50% of the kingdoms oil supply offline. This accounted for around 5% of global supply. The news was met with accusations from the US that Iran was responsible for the attack, a claim which Iran denied aggressively. With fears mounting over potential military conflict, safe-haven flows were noted though dissipated later in the week as Trump dialed back the military rhetoric.
The FOMC on Wednesday night then saw some initial upside in USD. This weighed on gold, though USD later reversed, bringing gold up off the weekly lows. The Fed cut rates by the expected .25%, highlighting still subdued inflation and a weaker global environment. However, the decision was not unanimous with 5 members (three voting) voting to hold rates unchanged. The outcome has seen a repricing of further rate cuts later in the year, which now look more uncertain. Trump was quick to attack the Fed on Twitter. He accused chairman Powell of having “no guts” and “no vision”.
There was a distinct absence of trade war headlines to drive gold this week. Aside from the risk positive (gold negative) news that Chinese officials were in Washington for preliminary talks ahead of the next round of face to face talks in October, there was little else mentioned. All in all, a relatively quiet week for gold traders.
Gold prices continue to retreat back under the 1522.75 level which is a major long term level in gold. For now this move appears corrective and a further push to the upside is still in the outlook. This current move can extend a little lower but while we hold above the 1433.24 level, focus is on a further grind to the upside. If we break below the 1433.24 level, the 1392.28 level is the next support zone to watch.
Silver prices have broken their correlation with gold this week, trading higher over the week. A softer US dollar as well as more positive expectations around the US/China trade negotiations, is keeping silver prices supported. Given the metal’s frequent industrial usage, the prospect of a US/China trade deal and better global manufacturing and trade conditions, is bolstering the near term outlook for silver prices.
Silver prices continue to range between the 17.3408 support and resistance at the 18.6397 level. While the support level holds, focus remains on a further rotation higher. If prices break down below the current support, the next major support level is down at the 16.2130 which also holds the retest of the broken long term bearish trend line. To the topside, the 18.6397 level remains the key marker to break.