With a heatwave hitting the European banking capital of London this week it seems that activity has ground to a halt. Gold prices saw a fairly subdued week of trading with price ending the session roughly unchanged from the open. Gold had been initially lower on the week due to a surge in USD strength. This was seen in response to news that Trump struck a budget deal with Congress.
The deal, which saw a bipartisan compromise of a higher increase in non-defense spending, means that the US will avoid another government shutdown. However, US economic data over the week helped gold recover off these lows.
The US manufacturing sector printed its lowest PMI reading last month in almost a decade. This latest insight into the doom and gloom of US manufacturing puts even more focus on the need for a resolution to Trump’s trade war. US delegates are due to restart talks with China next week. The market is hopeful that the two sides will be able to deliver a deal this time. This comes following the recent breakdown in negotiations in May.
The IMF’s latest outlook has also added pressure to the need for a resolution. The group slashed its forecasts for global growth next year. They cited the negative impact from the ongoing trade war and, while it upgraded US growth, it warned America about the damage that protectionist trade policies cause.
With the Fed widely expected to cut rates next week, the near term outlook for gold remains positive. The key focus next week will be on the size of the rate cut as well as the forward guidance for the Fed. The market is currently pricing in a .25% rate reduction as well as one further cut this year. However, pricing for a larger rate cut has increased and such a move would certainly be a boost for gold.
Gold prices remain hemmed in against the 1433.04 highs this week. Price has been testing this level for several weeks now and continues to find selling pressure. However, while price remains above the 1374.26 level, focus remains on further upside and an eventual break of the current multi-year highs.
Silver prices broke from their recent correlation with gold to trade firmly higher this week. Prices are trading up to their highest levels since June last year. The prospect of a trade deal between the US and China is keeping silver prices well bid. The reason why is due to silver’s frequent industrial usage. A rate cut next week would further support silver prices, which many investment banks have been forecasting to move higher.
The rally in silver prices this week has seen the completion of the large corrective ABCD move into 16.5883. While the price is, for now, still above the broken bearish trend line, bulls will need to see a break above current highs to negate the bearish reversal pattern.