Precious metals gained further ground in the second half of Thursday’s session with gold climbing towards $1830 and silver towards $26. The metals, already boosted by a dovish Federal Reserve on Wednesday, gained further ground on the back of weakness in US data and technical buying as further resistance levels broke, triggering a short-covering rally.
The latest macro data from the world’s largest economy underscores the Fed’s desire to remain patient with regards to reducing emergency stimulus measures. The US economy grew 6.5% in the second quarter instead of 8.5% expected, while pending home sales unexpectedly fell 1.9% m/m in June and initial jobless claims came in at 400K vs. 382K eyed. The latter has now missed expectations in 7 out of the past 8 weeks, a sharp contrast in the trend from the previous several months when claims were beating expectations almost every week.
The weaker US data weighed further on the dollar, while equity indices rose
to fresh highs on the day. Investors evidently bought more gold and silver after both metals had staged a reversal on Wednesday after the Fed Chair Jay Powell said more ground was needed to be covered before tapering bond purchases. The Fed’s inaction means real yields remain depressed, boosting the appeal of gold and silver. At the FOMC press conference last night, Federal Reserve Chair Jay Powell said: “We’re not there [to start tapering QE]. And we see ourselves as having some ground to cover to get there.” The Fed re-iterated that “substantial further progress” was needed to be made on employment and inflation before reducing its asset purchases from the current pace of $120 billion a month.
Judging by today’s weaker data and rising Covid cases, the Fed may have delay tapering even further. This should help to keep precious metals supported. The market’s focus will remain fixated on the US the economy, as investors assess how much further progress it has made and likely to make in the coming months. Next up is the Fed’s favourite measure of inflation on Friday in the form of the PCE core price index
. We will also have a few other data releases on Friday, including personal income and spending, Chicago PMI and UoM’s consumer sentiment and inflation expectations indices. Then, next Friday, we will see the release of the July non-farm jobs report, which is going to be very important considering the fact the Fed is now just waiting to see a bit more improvement in the labour market before starting to reduce the expansion rate of its balance sheet. We will also have the ISM PMIs and ADP payrolls report all to look forward to from the US next week.
Gold has now broken its short-term bear trend after spending several days below it. A daily close around current levels or higher would point to further strength, with 1850 being the next obvious target. Above this level, $1900 is the next bullish objective. On the downside, $1810/11 is the key support to watch, the point of origin of the breakout.
Source: ThinkMarkets and TradingView.com
Corporate results and macro data highlights on tap for this week
- Japan industrial production and retail sales
- Eurozone prelim GDP and flash CPI estimates (with French, German and Spanish data released earlier in the day)
- German retail sales
- Canadian GDP
- US Core PCE Price Index among handful of other US macro pointers
- Earnings: NatWest, Exxon and Chevron, Berkshire Hathaway, Caterpillar and P&G
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