Metals Sell-Off Pauses - For Now

On the back of the sustained selling we’ve seen over recent weeks, the metals market is seeing a more encouraging start as we kick off September. Flows will no doubt be much quieter today with the US and Canada out for the bank holidays there. However, so far so good for metals with both gold and silver bid off the lows. Today’s buying is seen despite a fresh rally in the US Dollar. The Dollar Index hit new 2022 highs overnight with traders eager to buy the greenback in reaction to a better-than-expected headline NFP release.

However. The overall labour market data was not entirely positive. Average hourly earnings were seen falling below expectations, juxtaposed with soaring inflation, while the unemployment rate was seen .2% higher. On the back of the data we’ve seen an important shift in market pricing for the September FOMC with pricing for a .75% hike slipping from above 70% prior to the release to less than 60% currently. With odds now more evenly split between a smaller .5% hike and a larger .75% hike, there is clear two-way risk for the Dollar ahead, and so too for metals.

This week, the focus is likely to be away from the Dollar with a raft of other central banks due to meet. The main event will be the ECB meeting on Thursday where expectations are tilted slightly in favour of a larger .75% hike from the ECB. If such a hike is seen, this will likely put some downward pressure on metals in the near-term. Alternatively, should the ECB opt for a smaller .5% hike, gold and silver should find some support near-term as bond yields come off a bit.

Technical Views

Gold

Following the failure and reversal from 1791.63, gold prices have since moved sharply lower with price breaking down below the 1722.37 level. Price is now sitting just above the current 2022 lows and key long-term support level around 1679.77. While above here, there is still room for a recovery higher (worth noting strong bullish divergence in momentum studies). However, a break below opens the way for a test of 1634.74 next.

Silver

The breakdown to fresh 2022 lows in silver last week has seen price yet to test the next key support zone of 17.4001. With both MACD and RSI bearish, the focus is on a further push lower through that region while the market stays below the 18.4421 level. If bulls can reclaim that level, focus will shift to 19.5643 above.