Precious metals now in the hands of the US Dollar gods

Precious metals, such as Gold and Silver, were picking up a bid mid-week ahead of the Nonfarm Payrolls showdown this Friday where there will be considerable attention paid following the recent disappointments in the ISM manufacturing data. The US Dollar is under considerable scrutiny while investors weigh as to whether it is a viable safe haven amidst a deteriorating global economic backdrop. 

Spot Gold was trading at $1498 and higher by 1.17% having travelled from a low of $1474.58 to a high of $1505.14 while Silver prices were higher by 1.48% having travelled between a low of $17.195 to a high of $17.679 on the day.  As for futures, Gold for December delivery on Comex added a solid $18.90, or 1.3%, to settle at $1,507.90 an ounce, extending the prior sessions gain on 1.1% while Silver for December delivery put on 38.1 cents, or 2.2%, to $17.683 an ounce. The Gold and Silver ratio, AUG/USD, was capped on the day, falling -0.64% from a high of 86.05 to a low of 85.13 pressured by the 200-day moving average following five consecutive daily advances within the September-month to date correction of the summer reversal as Gold attracts investor favouritism once again. 

All eyes on the Fed and Nonfarm Payrolls

The focus is now on the US Dollar. Will it be able to hold up in worsening domestic economic conditions?

This week's Nonfarm Payrolls will be the key following an eye-catching fall in the ISM Manufacturing which slipped deeper into contractionary levels in September. A strong Dollar is feeding through and hurting the US manufacturers, according to Donald Trump, "As I predicted, Jay Powell and the Federal Reserve have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected. Fed Rate too high. They are their own worst enemies, they don't have a clue. Pathetic!" Trump wrote - He likely has a point, as over the years we have seen that there is a strong negative correlation between ISM and the value of the US Dollar.

In the near term, however, we can expect to see the US Dollar struggle with the prospects of a Federal Reserve needing to react to such deterioration in the economy which in turn will likely support precious metals - That is what makes this week's jobs numbers so critical for the price of the US Dollar, safe havens and commodities - Should the data really disappoint, the Federal Reserve is bound to slash rates as well as amend their economic forecasts which in turn would send markets into panic mode and encourage a flight to safety - namely Gold. 

"We expect payrolls to increase by 150k in September, following the below-consensus 130k August print," analysts at TD Securities argued, adding, "Jobs in the goods sector should remain soft, while we look for a modest rebound in services. The household survey should show the unemployment rate remaining steady at 3.7%, while wages are expected to rise 0.2% m/m, leaving the annual rate unchanged at 3.2% y/y."

Gold levels:

The price stalled just below a 50% mean reversion of the late June swing lows to recent highs around 1460/70. On the upside, bulls will need to get back above the 1500 psychological level with conviction and then close through the 1535 resistance ahead of the 1,550 target which guards territories towards 1,590 as the 127.2% Fibo target. On the downside, the 19 July swing highs down at 1452.93 guards the 61.8% Fibo of the same range at 1449.56 ahead of a full 100% retracement to 1380.

Silver levels: 

We also witnessed a 50% mean reversion in silver where bulls have stepped in and taken on the 50-day moving average which guards space to back to a test of the 17.80s. Then, the bulls will need to overcome a triple-top target of 18.60/80 which guard the 19.60s and September highs. That 200-day moving average down at 15.80 is the bears target still beyond the 61.8% down at 16.10.