Safe Haven Flows Boost Gold

Gold

The yellow metal has been higher over the week as a combination of factors has seen renewed demand for it. This has helped gold recover from recent losses to trade back up above the 1500 mark.

The key driver over the week has been the risk-off mood in response to fresh data weakness in the US.

On Tuesday, the US ISM non-manufacturing print came in well below expectations, printing its second consecutive month in contractionary territory, as well as marking a fresh cycle low.

The disappointing reading has heightened concerns around the health of the US economy, once again stoking fears of a recession. These fears were exacerbated on Thursday as the ISM Non-Manufacturing reading came in below expectations. While still above the neutral level (printing 52.6), the reading was lower than market forecasts and shows much slower growth than the prior month.

Turning to today then, the market is now waiting for the release of the US employment reports for September.

The headline NFP reading is forecast to tick up. And the unemployment rate is likely to remain unchanged. That being said, there is a fear that (in line with recent releases) the data will disappoint.

If this proves to be the case, we are likely to see gold prices firmly higher.

Equities markets saw heavy selling across the week and while we have seen some recovery late in the week, as the focus shifts back to the conversation around further Fed easing, a weaker USD should help keep gold prices underpinned. However, If next week’s FOMC minutes further dilute expectations for more easing from the Fed, this could weigh on gold.

Technical Perspective

Gold prices recovered once again this week, making a further test of the long term 1522.75 level. For now, this move appears corrective, framed by a falling wedge pattern, as part of consolidation within the longer-term bullish trend. With this in mind, a further push to the upside is still in the outlook. However, If we break below the 1433.24 level, the 1392.28 level is the next support zone to watch.

Silver

Silver prices have ended the week higher also and once again its been a volatile session with price rebounding sharply off initial lows on the week.

The rebound in equity markets over Thursday helped silver prices pickup also. Looking forward, the next round of trade negotiations between the US and China will be an important driver for price action in silver which tends to respond positively to encouraging headlines.

Any further breakdown in relations, however, will likely cap silver upside in the near term.

Technical Perspective

Silver prices continue to range between the 17.3408 support and resistance at the 18.6397 level. Similar to the moves in gold, for now, the pullback appears corrective and while the support level holds, focus remains on a further rotation higher.

However, If prices break down below the current support, the next major support level is down at the 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.