Gold: USD Recovery Caps Gains
The yellow metal posted a third consecutive positive week. Gold prices took advantage of the initial USD weakness in response to the latest FOMC meeting. The Fed kept rates on hold as expected. The bank noted that growth was lower than expected over the first part of the year, despite solid labor market conditions and subdued inflation. Looking ahead, the Fed reaffirmed its commitment to keeping rates on hold saying it would be maintaining a “wait and see” approach to incoming data as well as highlighting the need for keeping an eye on global developments.
USD was quickly shunted lower as the market reacted to the decision and statement, allowing gold to trade further higher. However, a sharp USD recovery over Friday and Thursday has capped gold upsidefor now. The BOJ and ECB monetary policy is still at cycle lows. And the Bank of England confirmed that it will also be keeping rates on hold amidst ongoing Brexit uncertainty. As such, it seems that rate differentials still favor USD.
News of the EU offering the UK a conditional delay to Article 50 has also helped shore up risk appetite into the end of the week. There was some nervousness among investors regarding the Boeing investigation and Google fine. So, the market has definitely welcomed the news that the UK might remain in the EU for a further two months beyond the original March 29th deadline. This again capped gold upside here.
Gold has run into some interesting levels over recent trading. After piercing the 1316.96 level, gold prices sharply reversed lower. It traded back down below 1309.12 support to test the 1303.11 level before recovering back to the former level. Still trading within the bullish channel which has framed price action since the March lows, if price can stay above 1309.12, the focus is on a further push higher. The structural zone between 1322.98 and 1326.12 is the next focus point for bulls. Bears will need to see a break of the rising channel base and structural support around 1303.11 to gain a conviction in further downside.
Silver: Gold-Silver Ratio At Historic Lows Points To Upside Risk
Silver prices have broadly tracked the moves we’ve seen in gold this week. The metal traded higher initially on a weaker USD, before retracing some of these gains on the greenback’s sudden recovery. Prices are still fighting to recover from the sharp sell-off in February. However, many investment banks are still forecasting higher prices.
Many players have long been projecting higher levels linked to expectations of increased demand from the auto sector. Nevertheless, many are now also pointing to the historic lows in the gold-silver ratio. If we see a mean-reversion in this ratio, which is at its lowest levels since the 90s, this would quickly drag silver prices higher. The most likely candidate to cause and support this shift is a further slowing of the US economy. That, as well as the further reduced Fed rate hike expectations.
After breaking above the mid-February lows to trade highs of 15.6351, silver prices have fallen back below 15.5359. This is now holding as resistance. Price needs to get back above this level to keep bias on further upside, in line with the bullish channel which has framed price action since the March lows. Bulls will be targeting a run up to the next structural level around 15.7342 next.