Gold and silver ratio higher as silver bulls capitulate

Precious metals were mixed on Thursday, as investors weighed the likelihood of a Federal Reserve rate cut next week despite positive US data while balancing up the risks associated with the European Central Bank's announcements earlier today.

Gold spiked to a high of $1,524.24 on Thursday, travelling from a low of $1,489.39 but settled back to just a touch below the psychological $1,500 handle. Silver, meanwhile, failed to maintain a bullish posture and was way down from a high of $18.46 to print lows of $18.00 and skid along the bottom of the range for the best part of the US session. The gold and silver ratio was higher by 0.25% having climbed form a low of 82.23 to a high of 83.41 as silver struggles to maintain the pace of corrections of late. 

ECB, Fed, US CPI all playing their part

As for futures, December gold on Comex added $4.20 an ounce, or 0.3%, to settle at $1,507.40 an ounce while silver for December delivery settled 0.04%, at $18.177 an ounce. Meanwhile, the Dollar is now the central focus with the Federal Reserve approaching fast. The European Central Bank was unable to pull any punches, doing the bare minimum to spur growth and calling on more fiscal stimulus.

Nevertheless, the euro was heavily offered before bouncing back sharply and the US Consumer Price Index wasn't enough to support the Dollar despite coming in at the best level in 10-years, marginally beating market expectations. However, being a lagging indicator and the Fed more concerned about importing an economic recession and global growth, markets continue to expect a rate cut at next week's meeting. 

"US core (ex-food and energy) consumer price inflation for August has posted the third consecutive 0.3%MoM reading, above the 0.2% figure expected by the market. This has pushed the annual rate up to 2.4%YoY, the highest reading since September 2008 while the 3-month annualised rate is now running at 3.4%,"
analysts at ING Bank explained. 

"Inflation pressures are building just at the time the economy is showing signs of slowing. It is the latter that will drive Fed policy with another 25bp rate cut expected next week," analysts at ING Bank argued. 

"With the dollar remaining firm and other central banks embarking on policy loosening the Federal Reserve will cut rates 25bp next week and we expect additional policy loosening in December and 1Q20."

Gold levels

The 21-day moving average was pierced but only momentarily and there has been a bearish pin bar left on the daily chart, signalling further downside to follow. Indeed, the price remains below the 23.6% Fibonacci (Fibo) retracement of the July lows to recent swing highs as well as trading below the psychological 1500 handle. Below the 1,480 target, 1,478 comes as the 13 August volatility spike low which guards the 19 July swing highs at 1,452.93. Bulls will need to get back above 1,550 which then guards prospects for 1,590 as the 127.2% Fibo target area. 

Silver levels

Silver is holding above the 21-day moving average, although there are prospects of a drop from here considering the 18.50 levels caps on bullish attempts. Eyes will be on the 17.50s as being the 50% Fibo of 2016 highs to recent swing lows.