The yellow metal has been able to post a small recovery this week on the back of a softening in risk appetite. This has seen equities markets retracing from recent highs.
Traders were a little dismayed earlier in the week as Trump’s speech at the Economic Club of New York failed to offer any new insights into ongoing US-China trade talks.
There has been speculation that the two sides will agree on a deal at the APEC meeting in Chile this weekend. However, Trump commented only to say that his team was working hard. He gave no indication as to whether a deal would be signed in the coming days. For now, traders remaining optimistic, though cautiously so. This can be seen in the safe-haven flows supporting gold.
In the middle of the week, the latest US inflation data showed CPI rising at its fastest pace in seven months over October with a 0.4% month on month gain. This data follows a stronger than expected ISM non-manufacturing reading for October and is seeing a further reduction in expectations of Fed rate cuts in the near term.
At its last meeting, the Fed signaled that it would remain on hold for the time being while it assessed the impact of recent trade cuts. Speaking this week, Fed Chair Powell said that the full weight of those cuts is yet to be felt.
He stated that the near term outlook remains positive. While this view is likely to prove negative for gold in the medium term, it seems that heading into the weekend, traders are looking to use gold to hedge risks against any disappointment with US-China trade talks.
Gold prices have reversed deeply back inside the falling wedge pattern which has framed the correction from recent highs. The recent 1481.93 level, which has underpinned gold prices over the last three months, has now been broken. Focus is now on a test of the 1436.19 level next.
Price has so far held a test of the pattern low. However, while below 1481.93, further downside is likely. If price can break back above that 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 have tracked the moves in gold this week, posting a minor recovery. However, price is still sitting at the foot of last week’s major sell-off and the tone remains heavy.
The reduced prospect of further Fed rate hikes means that there is room for USD to appreciate. This could pull metals lower. Furthermore, if the US & China agree on a deal this weekend, the boost to risk appetite will also weigh heavily on metals.
However, silver might find some support from increased industrial demand. If this weekend’s APEC meeting fails to produce a deal, on the other hand, this will likely cause a sharp reaction lower in equities, driving metals higher on safe-haven inflows.
The recent rally in silver has seen price breaking down below the key 17.3408 levels as the bearish channel develops further. While this channel can still be viewed as a corrective bull flag structure, for now, bulls will need to see price quickly back above that broken support.
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.