By Orbex
Both gold and silver are continuing to soar this week. Today’s losses are owed partially to profit-taking, and partially to headlines that the US and China are going to meet for further talks in October.
Safe-haven demand for precious metals increased. This comes despite the yen experiencing a bearish shift from capital inflows in riskier assets.
Despite the de-escalation of the Hong Kong unrest and positive Brexit and Italian politics, XAUUSD and XAGUSD prices seem to be supported by weak economic data.
Following a week of profit-taking ending September 6, gold and silver found some backing from contractionary US ISM Manufacturing data on Tuesday. XAUUSD marked a third consecutive day in the green on Wednesday. Meanwhile, XAGUSD marked a fourth. This has caused some short-term pullback mainly seen today, Thursday. And traders are pocketing some profits after an amazing run.
Adding to it from a fundamental point of view, Wednesday’s surge came about after comments from the ECB. Upon Europe printing a recessionary retail sales number, IMF Chief and future ECB President Christine Lagarde made comments on longlasting policy accommodation in the euro area.
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Furthermore, many economies seem to be crossing into a technical recession. PMI data around the world is diving below the 50 ‘safety’ mark. The one that seems to be holding up firm against effects of the lingering trade war, surprisingly enough, is China.
Although the markets could drastically change tomorrow after the NFP result, traders of both metals are unlikely to step out from longs that easily. And this is due to the fact that Fed might be pushed for two extra cuts in 2019 now should US PMIs remain weak. Consequently, traders are aware of what poor Manufacturing PMI can mean for the employment sector.
Gold has been moving along with economic rather than political developments this week. This is contrary to its behavior last week. It’s also been moving on some technicals, of course.
As long as XAUUSD rests above the $1521/oz support the upside potential remains intact. In the quiet possible scenario prices break below the said level, market participants should turn to lower levels as institutions will most probably step in to buy the dips.
The downside potential could send prices down to $1444/oz, provided the expanding flat pattern has wave C to complete.
It remains to be seen whether the multiyear high reached yesterday was indeed a false break. Or simply perhaps a fresh high that is going to lead to more buying. Note that the RSI paints a helpful signal.
The silver breakout above $16.10/oz a few weeks back has brought massive institutional flows, moving parabolically.
Without a divergence or a technical signal appearing on the charts, silver might end up appreciating higher while gold remains in either a consolidation or falls.
The current formation indicates that XAGUSD could find some headwinds at the 2.618% extension near 20.65/oz. Whether a correction will follow in the short-medium term is still unclear but highly possible considering profits haven’t been taken out for quite a while now.
A potential correction could weaken silver down to the $18.3/oz area or even for a retest of the $17.53 lower high. However, the RSI seems to suggest that the latter may be too low for the current geopolitical and economic environment.
By Orbex
