Metals Weighed On By Stronger US Dollar

With the US Dollar rallying across the European open on Monday, the metals market is seeing softer trading. Both gold and silver have started the week under offer as a higher USD and resilient equities prices divert trader attention elsewhere.

USD has been bolstered by the better consumer sentiment data seen on Friday which is helping dilute recession fears somewhat. Additionally, the fall-back in inflation over July has also been taken as an encouraging sign. At 8.5%, CPI was still well above target in July. However, this reading marked a significant slow down from the prior month’s forty-year highs of 9.1%. The data has been welcomed by USD bulls as being a more positive input for growth projections over the remainder of the year. While markets have begun to price in a slower pace of hiking from the Fed, and this will certainly get more focus going forward, for now, the impact is supporting USD, weighing on metals.

Broader developments in the risk backdrop are worth noting as we start the week. News of a further 0.10% rate cut from the PBoC has been a double-edged sword for markets. While news of fresh China stimulus has no doubt been welcomed, along with a slew of weaker-than-expected China indicators overnight, the move raises fears over the health of the Chinese economy. The fresh lockdowns this year have taken a heavy toll on the Chinese economy and with risks of further measures, as the country pursues its zero COVID strategy, there might be more downside to come. If this is the case and we start to see equities prices falling, gold might well start to see better safe-haven demand.

Technical Views

Gold

The rally in gold prices off the 1679.77 level has seen the market trading up through the bear channel from YTD highs. The correction is currently stalled around the 1791.63 level. However, with both MACD and RSI higher, the focus is on a further push higher towards the 1871.04 level while price holds above 1791.63. To the downside, any slip lower here will put focus on the 1722.37 level support.

Silver

The rally in silver prices has seen the market reversing higher off the 18.4421 lows, trading back up through the bear channel top and up to test the 20.6398 level resistance. With both MACD and RSI bullish, the focus is on a further push higher towards the 22.3205 level next. To the downside, 19.5543 is the next support to watch.