LAWRIE WILLIAMS: Gold and silver pop on China trade talk downplay

As the likelihood of any imminent trade settlement between the U.S. and China seems to be receding, both gold and silver prices popped upwards quite vigorously.  They had previosly come back quite sharply on more optimistic news being bandied about on an imminent Phase 1 deal, although we, ourselves, remained sceptical!

The latest change in sentiment arose from a tweet from President Trump indicating that a trade deal was unlikely until after the 2020 Presidential election. this may have been a Trump negotiating tactic but this could effectively suggest no deal until 2021 at the earliest – and the way trade negotiations have been going with neither side seemingly prepared to give way on some key issues - even a resolution then would seem unlikely!  However this is a fluid issue and no doubt there will be both positive and negative public relations statements in the meantime, if only to pay lip service to relevant audiences with little, or nothing, concrete emerging in terms of a deal being actually imminent.  Gold and silver prices will, no doubt, rise and fall depending on the general perception as to the likelihood of any such statements bearing fruit.

Equities markets all declined sharply and the U.S. dollar moved down too which will have helped precious metals prices advance.  But gold and silver are still sharply down over the past month and unless gold can move back above resistance at $1,500 and silver at $18 they will remain in a technical downturn.  The next stage may well now be the imposition of additional U.S. tariffs this month unless President Trump mitigates these in the interests of defusing an immediate Chinese counter move.  If these tariffs are imposed and the trade dispute thus escalates further, we suspect gold and silver may breach the aforementioned resistance levels and equities markets will continue to suffer.

China is undergoing a fairly serious short term growth downturn, but it may consider this a price worth paying provided the lid can be kept on any resultant domestic unrest.  While the U.S. is a key market for Chinese-manufactured goods, the impact of the U.S. trade tariffs may be reduced by allowing the yuan to fall against the dollar, while China looks towards building other export markets as well as making the transition towards a replacement of exports through increasing domestic demand – its probable ultimate aim.

The pattern of the gold price rise was interesting too.  It went up in $10 tranches.  There was a bit of a hiatus at $1,460 which saw a little resistance and then again saw a bit of a hiatus at $1,470 before it broke out again and hit $1,480 where further resistance was apparent and the price moved sideways just below the $1,480 level until the close.  This may be an indication of computerised high frequency trading with selling coming in at $10 intervals.  If that is the case and the gold sale price pattern remains positive we could see further resistance at $1,490 and again at $1,500 – the latter being the key and if that level is broken one suspects that the price could then move rapidly to a new interim high above $1,550.  However the timescale on this kind of move remains distinctly uncertain and will probably be dependent on the vagaries of perceptions of the strength or otherwise of U.S. data announcements.

This morning, after a brief foray above the $1,480 level, the gold price was brought back down again to the low to mid-$1,470s where it seems to be consolidating again and we would not be too surprised to see it attack the $1,480 level once more.  Asian equity markets fell overnight following yesterday’s sharp Wall Street falls, but European markets this morning are making something of a recovery.  It will be interesting to see how U.S. equities perform today.  Maybe yesterday’s falls were overdone?  We shall see.

04 Dec 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

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