This past week gold and silver investors resoluteness was once again being tested after the yellow metal posted its biggest one-day drop in three weeks on Tuesday, while silver added another 3.5% down in the day, to the two already recorded this September. The four major parts continuing to impact the outlook with alternating force are: the dollar, bond yields, equities and geo-political developments.
Investor participation remains high: During the rally on Tuesday to $1535/oz total holdings in bullion-backed Exchange-traded funds jumped by 22.2 tons. It is currently less than 55 tons below the 2012 record of 2,572 tons. Also, on Tuesday, the number of total outstanding futures contracts on the gold contract traded in New York, the so-called Open Interest, reached a record 659,000 lots.
While expressing a firm belief in gold, these developments also raise concerns about a correction should the market fail to hold onto support, currently between $1500/oz and $1484/oz (chart below). From a technical perspective it is also worth keeping in mind that a move down to $1446/oz would be categorized as being a weak correction only within a strong uptrend.
While the current geopolitical developments in the Middle East have so far only had a limited impact on gold, it is instead the US – China trade talks and the dollar which hold the key to its outlook. The risk to global growth - which has supported the collapse in global bond yields - has led to renewed rate cuts from major central banks.