Metals Reverse on Trade Deal Reports
Weekly Metals Wrap
The yellow metal was initially higher over the week on continuing market jitters ahead of a potential US-China trade deal. This combined with a weakened US dollar to help lift price.
Into the middle of the week, traders still had not been given great visibility over whether a trade deal was coming. The US administration warned China that, in case of a no-deal by December 15th, a new round of 15% tariffs would go live on $156 billion of Chinese products.
Over recent weeks, talks have seemingly stalled. And, despite reassurances from both sides, the market has been nervous over the prospect of fresh tariffs.
In light of recent efforts by the Chinese (removing some tariffs, increasing US agricultural purchases) there had been speculation that the US would postpone tariffs to allow talks to continue.
However, late in the week, gold was knocked lower. This came in response to reports that the sides had agreed on a phase-one trade deal “in principle.”
The deal is said to include an offer by the US to reduce tariffs on about $375 billion in Chinese goods by 50% across the board, along with the cancellations of the next round of trade tariffs due on Sunday.
This offer has taken traders by surprise. This especially true given that, up until last week, Trump had been adamant against reducing tariffs. This update represents a significant improvement in the relations between the two sides.
Gold prices continued to correct higher within the bearish channel which has framed the sell-off from 2019 highs. Price made a further test of the 1481.93 level which is still holding as resistance for now.
For now, we can still view the pattern as a corrective bull flag suggesting that upside could still materialize. If the price can break back above the 1481.93 level, the key level to watch in the short term is 1522.75. This is a major long-term pivot for gold. Above here, the focus will be on a move back up to the recent 1554.69 level.
Silver prices tracked the moves seen in gold across the week, rising higher to recover off last week’s lows. Along with cross-flow support seen from the safe-haven rally in gold, silver prices have also benefitted from a weaker USD this week.
At its December meeting, the Fed was well in-line with expectations, keeping rates unchanged. The Fed reiterated its message that the current policy rate remains appropriate and will likely continue to be so.
However, again, the Fed added that it would continue to monitor data to ensure economic performance is in line with the outlook. The US dollar weakened on the back of the meeting. Traders judged that the bank is still keeping the door to further easing open.
17.3408 has continued to hold as resistance for silver this week. While we can still view the current bearish channel as a corrective bull flag structure, for now, bulls will need to see price quickly back above the 17.3408 level.
Below 17.3408, 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.