Metals Rise As USD Weakness Continues

It’s been a much better opening for metals traders this week. With the greenback still under selling pressure today, gold and silver prices are continuing their recent recover run higher. Gold is now trading around 4% higher from last week’s lows with silver prices around 8% higher. While the US Dollar remains under pressure, metals prices are likely to recover further near term.

USD selling over the last week appears to be driven by recessionary fears in the US. With the Fed turning increasingly hawkish at a time when inflation is still elevated and some major US corporate names have issued profit warnings, traders fear the activity over the rest of the year will suffer massively. The Fed itself has warned that it might not be able to avoid a hard-landing for the US economy in its battle to bring inflation down. The Fed is hoping that strength in the labour market will provide a buffer. However, with Fed chairman Powell recently warning that the Fed will keep going with rates, even lifting above the neutral level if necessary, to bring inflation down, recessionary concerns are hitting the Dollar for now.

For the metals complex, continued weakness in the Dollar is certainly helpful. However, the extent to which we see a fuller recovery in gold prices will likely depend on how risk assets trade form here. If risk assets continue to find demand, this will likely offset the positive impact of a weaker USD on metals prices.

Technical Views

Gold

The rebound in gold prices over recent days has seen the market trading back above the broken bull channel. With both MACD and RSI turning positive here, the focus is on a continuation higher if bulls can get back above the 1871.04 level. Above there, 1919.92 is the next key resistance to note. To the downside, 1826.71 is the main support on watch.

Silver

Silver prices are sitting in a key area here. We have a range of confluent resistance with the bear channel top, 22.3205 resistance and the retest of the broken bull trend line all sitting nearby. If bulls can break through this area, this will be a firmly bullish signal. If we run into selling pressure here, however, focus will be on further downside near-term.