Keep an eye on silver as gold pops

Up until last week the yellew metal had been mostly immune to weaker stocks amid the ongoing trade war and its potential negative impact on growth. What changed last week was the accelerated drop in US bond yields as talk of recession risk turned mainstream. During the past few days the Fed Funds future has rallied further to add another 25 basis points to the near 50 bps already priced in before year-end. In other word,s the market is increasingly telling the Federal Open Market Committee to get off the fence and begin cutting rates. 

Staying with the US Federal Reserve, we are likely to see some increased scrutiny of the speeches being held by chairman Powell Tuesday and vice chairman Clarida on Wednesday at a Chicago Fed Conference where the theme is  Monetary Policy Strategy, Tools, and Communication Practices.

After breaking the April and May highs, gold is currently challenging $1,316/oz which represents the 61.8% retracement of the February to May correction. A break above will leave little in terms of resistance before the 2019 high just below $1,350/oz. In the short term some consolidation above $1,300/oz can be expected with funds having seen several failed attempts, both to the upside but also the downside wanting to take stock. 

However with the FOMC moving towards a cutting mode, recession risks on the rise and a trade deal still nowhere near to being agreed, this is the time for gold to show what metal it is made of.