Access both platforms from your single Saxo account.
Keep an eye on silver as gold pops
Ole Hansen
Head of Commodity Strategy
Summary: Gold has finally begun to react and behave according to the signals, mostly supportive, that other markets have been sending during the past month and this may ultimately provide even better potential for silver, which has been largely neglected of late.
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.
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.
Renewed support for gold may provide an even better potential for silver, the forgotten metal in recent months. The white metal has been troubled by its industrial link and raised concerns about recession. During the February to May sell-off silver dropped twice as much as gold and only during the past couple of days has it shown signs of life after breaking the downtrend from the February high.
This is being reflected in the gold-silver ratio which measures the cost of one ounce of gold in ounces of silver. During the past week it has almost reached 90 and the cheapest level in 26 years. The flattening US yield curve, which is reflected below as the spread between one and ten-year government bonds, is signalling a increased recession risk, an event that silver historically has struggled to deal with.
Hedge funds have been continued sellers of silver silver during the past three months in response to flattening yield curves and a widening discount to gold. So much so that they have now been left unprepared for a renewed price strength after accumulating a net-short which in the week to May 28 reached a seven month high at 39,042 lots, not far from the 47,000 lots record from last September. A continued gold rally from here could on that basis attract short-covering in silver which may trigger an outperformance despite the mentioned headwinds.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)