Fed Rate Cut Expectations Boost Metals

Gold

The yellow metal has been higher again this week. Gold posted its second consecutive positive week as of writing.

The main driver behind the move is the expectation that the Fed will cut rates again when it meets next week. Since the September FOMC meeting, data has been consistently poor. In particular, the manufacturing reading that we saw for September.

While this week, we saw manufacturing rebounding slightly over October, the data was accompanied by a sharp drop in US durable goods. With data remaining weak, the market is now looking for the Fed to ease again in October. This is keeping gold prices supported in the interim as the outlook for USD remains subdued.

Weakness in USD and expectations that the Fed will ease again this month have been providing upside pressure for gold. However, this upside has been offset somewhat by improved risk appetite thanks to increased expectations of a US-China trade deal.

The two countries have continued talks this week. There have been several phone calls between deputies on Monday. And today’s meeting (Friday) between the US Treasury Secretary and Trade Representatives and their Chinese counterparts will follow.

The market senses that the “phase one” trade deal Trump announced this month will be signed, as planned, at the upcoming APEC meeting. However, risks remain and the deal jas yet to be signed. Negotiations have broken down in the past and given the stubbornness of both sides, there is still room for upset.

Technical Perspective

Gold prices are now testing the upper trend line of the falling wedge pattern which has framed the recent consolidation near highs.

The recent 1481.93 level has formed interim support and while above here, a further push to the upside is still in the outlook. However, If we break below, the focus will shift to the 1436.19 level next and the 1392.28 level beyond that.

Silver

Silver prices have been higher across the week, tracking the moves in gold.

Metals have been higher despite the moves upwards in equities prices thanks to the recovery in risk appetite.

Supportive developments in US-China trade negotiations are keeping risk assets well bid with the SPX500 sitting just off all-time highs. However, despite the upside in equities, there are expectations that the Fed will cut rates this month.

If the Fed does press ahead with a rate cut, the market will be closely watching the monetary policy statement and conference after. They will pay special attention to gauge if any further cuts are likely this year. Especially given that currently, pricing for a December rate cut reflects divided opinions!

Technical Perspective

Silver prices have risen off the 17.3408 support and have broken above the upper trend line of the bull flag pattern which has formed on the pullback from recent highs. While above 17.3408, the focus remains on a further move higher with the 18.6397 the next topside level to watch.

However, If prices break down below the current support, the next major support level is down at 16.2130 which also holds the retest of the broken long term bearish trend line. To the topside, the 18.6397 level remains the key marker to break.