Gold and Silver take a hit on strong Dollar demand

The recent repo market dealings have seen a sharp spike in the Dollar due to demand factors which has led to an equally sharp fall in precious metals. Also, US stocks were making a comeback and US yields were back on the rise as markets priced out the House Speaker Nancy Pelosi’s decision to launch a formal impeachment inquiry against President Donald Trump, putting it down to much more of the same old same old. 

Spot Gold prices travelled from a high of $1535.14 to a low of $1500.55, ending on Wall Street -1.75%. The white metal, Silver, ended -3.50% falling from a high of $18.68 to a low of $17.82. As for futures, Gold for December delivery on Comex fell a whopping $27.90, or 1.8%, to settle at $1,512.30 an ounce while December Silver lost 55.5 cents, or 3%, to $18.073 an ounce, a day after posting a decline of 0.4. The Gold and Silver ratio travelled 1.80% higher from a low of 82.11 to a high of 84.06. US stocks bounced back with the Dow Jones Industrial Average adding 168 points, or 0.6%, at 26,994, while the S&P 500 index put up 18 points or 0.6% at 2,985. The Nasdaq Composite Index added 87 points or 1.1% at 8,083.

Repo market supporting the Dollar

The overnight dollar repo market was heavily oversubscribed, the second-highest on record, and the liquidity shortage is getting worse again which is supportive of the Dollar due to there being so much demand yet so little liquidity, forcing the NY Federal Reserve to jump into financial markets in an attempt to keep interest rates moving higher, injecting hundreds of billions for the first time sinceth global financial crisis. 

As for US yields, the yield on the US 10-year note was rising 8-basis points to 1.72%, its biggest one-day rise since Sept. 13th and while the 2-year note rate rose 7.9 basis points to 1.683%.  The 30-year bond yield added 8.8 basis points to 2.181%. The DXY climbed 0.70%. 

US data

"In the US, new home sales rose 7.1% to 713k in August, close to post-GFC highs. The supply of new homes dropped to 5.5 months from 5.9 months. The data follow other positive development in housing recently with starts, permits, and the NAHB index all rising. Low mortgage rates from the Fed’s recent cuts are contributing to the rise in activity," analysts at ANZ Bank explained. 

Gold levels

We are seeing failures at critical upside levels which now open the prospects of a 50% mean reversion of the late June swing lows to recent highs around 1470. Thereafter, we have the 19 July swing highs down at 1,452.93. Should fundamentals kick back in, however, bulls can look back to the 1535 resistance with the 1,550 level in sight, which guards territories towards 1,590 as the 127.2% Fibo target.

Silver levels

Bears closed below the 21-day moving average around 18 the figure and have their eyes set on the 16.50s (July resistance) further down. On the way there, we have a 38.2% retracement target at 17.50 and a 50% at 16.80 with the 61.8% down at 16.10. On the upside, the 19.60s and Sep. highs will be a focal point for the bulls.