US Rate Cut Boosts Gold & Silver
Weekly Metals Wrap
The yellow metal is ending the week firmly in the green, as of writing.
Weakness in USD has created further demand for gold. Prices had been subdued earlier in the week due to improved risk sentiment in response to encouraging headlines around ongoing US-China trade talks.
On Monday, Trump sparked a 100 point rally in the SPX500. This came as a result of comments to reporters that a deal was ahead of schedule and likely to come sooner than expected. As a result of the surge in equities prices, gold came under some pressure as safe-haven flows dried up.
However, into the middle of the week, focus shifted to the Fed’s October FOMC meeting.
Expectations were for the Fed to cut rates again heading into the meeting. In line with the consistent deterioration in economic readings since the last meeting, the market was pricing a rate cut as a near certainty.
The Fed did, indeed, follow through. They implemented a .25% rate cut, as expected. USD softened in response to increased support for the cut, which saw 8 members voting in favor, up from 7 at the September meeting.
However, despite the cut, the third this year, the chances of a further cut in December have decreased. The Fed noted that it will now take time to assess incoming data and developing external factors (trade war) before any further adjustments. Given that it seems as though the US and China will sign a trade deal in the coming months, the likelihood of further rate cuts appears reduced at this point.
Nevertheless, USD remains weaker currently, keeping gold price bid into the end of the week.
Today’s US employment reports pose the potential for further USD weakness if we see any weaker-than-expected readings. Labor market growth has been stalling over recent months and a miss at this stage could exacerbate the USD unwind, leading gold higher.
Gold prices are once again attempting to break out above the top of the falling wedge pattern which has framed the correction from recent highs. The key level to watch in the short term is the 1522.75 level. This is a major long-term pivot for gold. Above here, focus will be on a move back up to the recent 1554.69 level.
The recent 1481.93 level has formed interim support. While above here, a further push to the upside is still in the outlook. However, If we break below, the focus will shift to the 1436.19 level next and the 1392.28 level beyond that.
Silver prices have been higher across the week also, tracking the moves in gold.
The silver market has been a strong beneficiary of the weakness in USD. However, it has also benefitted from the surge in equities prices, particularly in industrial stocks.
While safe-haven flows will be negatively impacted by positive news on the trade talks, silver should see some of the downside offset. This is due to increased industrial demand from a rebound in world trade should the US and China proceed with signing a deal.
Silver prices have risen off the 17.3408 support and have broken above the upper trend line of the bull flag pattern which has formed on the pullback from recent highs. While above 17.3408, the focus remains on a further move higher with the 18.6397 the next topside level to watch.
However, If prices break down below the current support, the next major support level is down at 16.2130. This 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.