The yellow metal has been firmly lower this week as a resurgent US dollar has taken the shine out of gold demand.
Earlier in the week, the USD saw renewed buying as the latest ISM Non-Manufacturing reading showed a recovery in the services sector over October.
Following the three-year lows hit in September, traders were relieved to see a strong recovery over the last month. This saw USD immediately higher. The data comes shortly after the Fed indicated a preference to keep rates on hold in the near term.
At last week’s FOMC meeting, the Fed cut rates for the third time this year. The bank noted that it will now revert to a data dependant stance while it monitors the progress of the economy. In the near term, any further data beats will likely drive USD higher, pulling gold down, as traders further reduce their easing expectations.
The ongoing US-China trade negotiations have also weighed on gold prices this week.
The market is more and more expectant of a deal going through this month. As a result, equities prices have been surging higher.
In the US, SPX500 continues to trade into fresh record highs. This has obliterated safe have inflows for gold, keeping the yellow metal weighed down. Reduced Brexit uncertainty has also seen gold prices lower this week as the latest delay to Brexit, as well as the upcoming UK election, are reducing the risks of a no-deal Brexit.
Gold prices failed on the breakout above the falling wedge pattern and are now trading back under the upper line of the structure.
The recent 1481.93 level, which has underpinned gold prices over the last three months, has now been broken and focus is now on a test of the 1436.19 level next with the lower trend line of the falling wedge pattern coming in just above.
Should we see a further rotation higher, the key level to watch in the short term is the 1522.75 level. This is a major long-term pivot for gold. Above here, focus will be on a move back up to the recent 1554.69 level.
Silver prices have tracked the moves seen in gold this week with the market crashing lower as the US dollar enjoys a firm recovery.
While silver prices are likely to remain lower in the near term, the prospect of a US-China trade deal could help silver going forward.
Increased industrial demand would likely underpin prices, offsetting the downside from a lack of safe-haven demand for precious metals. However, with gold likely to head lower, its correlation with silver should weigh on the market further.
Silver prices rose off the 17.3408 support to break above the bull flag pattern. However, the move has since reversed and price has broken back below the structural support level.
Below 17.3408, the next major support level is down at 16.2130. This 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.