Gold Explodes Following Equities Crash

Gold

It has been a big week for the yellow metal which exploded to trade its highest levels since 2010. The move was driven by the deterioration in the relationship between the US and China which took a further turn for the worse over the last week. Following last week’s trade talks, the first since talks collapsed in May, President Trump took the markets by surprise. He announced a fresh set of trade tariffs. The new 10% tariffs will be applied to a further $300 billion of Chinese goods entering the US from September 1^st.

The move has now thrown trade talks into jeopardy once again. Traders are worried that the next set of talks due to take place in September, will be abandoned. Following the announcement, the Chinese then responded.

On Monday the yuan was sharply devalued. USDCNH was sent back over the 7 level for the first time since the 2008 global financial crisis. The mood soured further on Tuesday as the US Treasury Dept issued a statement labeling China as a currency manipulator. This is the first time the label has been officially applied since 1994. It was immediately met with a counter statement from the Chinese central bank the PBoC which denied the claims.

Equities collapsed on Monday in response to the development, fuelling massive safe-haven inflows for gold. While equities have since recovered some of the losses, seeing some softening from recent highs in gold, the yellow metal is still set to end the week at fresh highs. This is keeping focus on further upside in the near term.

Technical Perspective

The breakout in gold this week saw price trading back above the 1472.06 level for the first time since 2010. While above here, the focus is on further upside. The next level to watch is the 1522.75 level. This holds the 2012 and mid-2011 low and is a major long term level for gold. The level has not been retested since it was broken in 2013 and should find decent selling on the first test.

Silver

Silver prices have tracked the moves in gold this week with the market surging to its highest level since early 2018. Along with the tensions stemming from the US-China trade war, the precious metals have also been boosted by a wave of fresh central bank easing this week. This was headlined by a .50% rate cut by the RBNZ which was double the market forecast. With expectations for further easing from the Fed as well as easing from the ECB in coming months, the outlook remains positive for metals. Further upside likely to transpire in the near term.

Technical Perspective

Silver broke out above the 16.5877 level this week to trade fresh 2019 highs of 17.2430. While above the 16.5877 level, the focus remains on further upside. The next topside level to watch is 17.3336 which is the mid 2018 high. This comes in just below the overall 2018 high at 17.6936. Any break back below the 16.5877 level is likely to find support into the 16.1994 zone.