Gold & Silver Market Analysis for Friday 1st October

Kinesis Macroeconomic & Gold Analysis

The strength of the U.S. Dollar remains a bearish element for gold. However, there is a light at the end of the tunnel. 

This week, for the first time in over a year, the EUR and USD rate has fallen below 1.16. The last time the most traded currency in the world – the US Dollar – reached this level was in July 2016, when Donald Trump was still the president of the United States. During this period, the markets were betting on further stimulus (in this case, we are discussing dovish monetary policy which will generate more liquidity) from the Federal Reserve, to fight the consequences of the pandemic.

In the following weeks, the greenback lost its ground with the EUR and USD climbing to 1.20 at the end of August 2020. At this time, the weakness of the U.S. Dollar was a supportive driver for bullion, with the price jumping, for the first time in history, above $2,000 –  investors were looking for a safe haven, in the middle of the pandemic.

These past few weeks have shown a very different picture, as the Fed is preparing the markets to reduce monetary stimulus and the greenback is experiencing a recovery.

Gold has suffered due to the strength of the U.S. Dollar and the rebound seen on the U.S. 10 years notes (Treasury Bonds). It’s expected that next month the Fed will announce the tapering for the markets, beginning the process of reducing liquidity in December 2021. More importantly, interest rates should rise, for the first time, in 2022.

Once again, we are seeing a significant negative – notably inverse – correlation, between the gold price and the U.S. Dollar.

Will the U.S Dollar continue to strengthen and gold lose ground? Not necessarily.

First of all, the start of tapering is imminent and already seems to be partially priced by the markets.

Secondly, the fundamental basis for gold demand appears relatively solid, indicating that there won’t be a significant decline. 

And finally, any turmoil on the stock market – or in the currency markets as well – would cultivate an increased demand for a safe haven and, certainly, gold will be a winner.

There’s one more thing that should make investors think.

Yesterday, the data on U.S. labour was a fraction below what was expected, which was enough to trigger a significant rebound for gold. Bullion jumped from $1,730 to $1,760, before resting at $1,752 – 1,755. This sudden rebound may show that sellers are losing power and therefore, buyers are trying to invest during a dip, now viewing gold as a more attractive choice after the recent decline.

From a technical point of view, bullion recovered from the $1,750 resistance, offering a positive signal to investors. In the coming days, we will learn more about this rebound and whether there is a potential for a proper inversion.

Kinesis Money Silver Analysis

Yesterday, the silver price jumped 3%. After reaching a 15-month-low at 21.4, the precious metal rebounded above $22 in just a few hours and is now trying to hold fast above the support zone of $22.1 – 22.2. A clear surpass of $22. 2 would show a clear strengthening of the bullion, opening space for new rallies with a quick target placed at $22.5 and $22.7.

At this stage, we are still speculating about a rebound and not an inversion, but certainly, the speed and strength of this rebound are ramping up investor’s interest in silver.

Carlo Alberto De Casa is Market Analyst for Kinesis Money.

He also writes as a technical analyst for the Italian newspaper La Stampa.

Carlo Alberto provides regular commentary for UK outlets including the BBC, Telegraph, the Independent Bloomberg & Reuters. He is also a commentator for CNBC Italy. He worked for Bloomberg as their Equity Research Fundamental Analyst before joining brokerage ActivTrades in 2011 to specialize in currency markets and commodities. In 2014 he published a book on gold and the gold market, followed by a new updated edition in 2018.

This report is not an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance.