Precious metals tack on extra gains on safe haven flows

  • Spot Gold was around 1% higher, travelling from a low of $1498.09 to a high of $1516.38.
  • The Gold and Silver ratio added to the mid-week bullish correction.
  • Silver prices inched higher to short term trendline resistance.

Precious metals gained on Friday following the news that Chinese and US trade talks were cut short while troubles in the Middle East continue to concern investors, and US benchmarks closed in the red, fueling a flight to safety. Spot Gold was around 1% higher, travelling from a low of $1498.09 to a high of $1516.38 while Silver prices inched higher to short term trendline resistance, walking into the Wall Street close around 0.90% higher having travelled from a low of $17.75 to a high of $17.98. The Gold and Silver ratio added to the mid-week bullish correction, moving up from a low of 83.84 to a high of 84.71, around 0.30% higher on the day. 

As for futures, Gold for December delivery on Comex added $8.90, or 0.6%, to settle at $1,515.10 an ounce, after retreating 0.6% on Thursday. December Silver lost a marginal 3.5 cents, or 0.2%, lower to $17.869 an ounce. Gold futures gained 1% for the week, after 3 straight weekly declines while Silver made a weekly gain of 1.6%.

Fundamentals playing into the bull's hands again

On the fundamental front, the Federal Reserve has played their hand for now, with speculation that the rate cut was a one and done until at least 2020, depending on the economic performance of the US and how well trade talks go. However, while there had been some belief that the US and China were on the verge of a breakthrough with talks starting up again, it would appear that we are still as far away as we ever in finding a solution to the dispute. 

"I do not need a US-China trade deal before the 2020 election," Trump said in a joint press conference with Australian Prime Minister Morrison. "I have an amazing relationship with China's Xi but we are having a little spat." There was also news that the Chinese cut metings short this week, and thus we are back to square one again. "Political determination from decision-making circle of the two countries is needed in order to reach a deal," Hu Xijin, the Editor in Chief for the Global Times argued. 

Meanwhile, analysts at TD Securities explained that with the latest Fed cut digested by the market, "gold continues to straddle the $1,500/oz level, and now awaits the next catalyst which is likely to come in the form of economic data in the US as Fed expectations become more data-dependent going forward."

"We expect that further weakness on the economic data front will catalyze additional gains in precious metals, and we expect the Fed to cut interest rates another 25bps at the end of October. As market pricing for a cut in October remains below the 50% mark, gold and precious metals could still have some room to the upside should those probabilities converge to a cut as we expect. That being said, we expect little flow from CTAs in the complex for the time being."

Gold levels:

Bulls finally broke through the recent resistance with a higher high in the 1,500s and closing above the 4-hour 200 moving average at 1,510 which was guarding prospects to the 1,550 level which guards territories towards 1,590 as the 127.2% Fibo target area. On the flip-side, a 50% mean reversion of the late June swing lows to recent highs around 1470 guards the 19 July swing highs at 1,452.93. 

Silver levels:

Technically, Silver is testing the upside resistance and breakout point converging around 18 the figure, supported by the 4-hour 200 moving average. Bulls were closing just above the 21-daily moving average and daily pivot point and will look towards the September highs of 19.64, while on the downside, bears can look to the 16.50s.

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