- Risk-off markets are seeing capital flows into precious metals, silver and gold.
- US dollar on the backfoot and testing technical bearish barriers.
- Silver is falling just shy of a crucial technical resistance level in the 17.20s
Silver prices have been capped just ahead of a key technical area of resistance marked out by the prior November swing highs and a 38.2% Fibonacci retracement target level of the Oct/Nov range. Silver trades over 1.6% higher on the session at the time of writing having travelled between a low of $16.87 and $17.20 the high.
Precious metals were in favour while the greenback continued to bleed out and pierce a key technical downside support level in the DXY. There are a number of factors playing out which have made for a risk-off environment which usually supports safe-haven asset classes such as precious metals.
Trade deal hopes vanish over the horizon
One of the main catalysts for the price action is derived from over 17 months of trade disputes between Chine and the US. The latest development was centred around a so-called phase one deal which was hoped to have been inked ahead of the due date for the next round of tariffs on Chinese imports for 15 December.
However, the preferred timeline to get a phase one deal done is fast approaching, yet, there have been a number of recent provocations from both sides that likely have eaten into the time that could have otherwise been spent on putting a deal together. Instead, the latest headline on this front is that rump said it could be preferable to hold off on completing a trade deal until after the November 2020 presidential election – bullish for precious metals.
US dollar and Fed come into play
Indeed, risk assets are under pressure again on global trade uncertainty, yet coupled with a softer US dollar taking on a key support level in the DXY, poor US manufacturing data,
capital is set to flow towards the precious metals.
“The US central bank’s reaction function suggests that while the Fed may cut rates, they are far from hiking and are likely to allow inflation to creep higher, thereby suppressing real rates and maintaining the allure of gold,” silver’s sister metal,” in a portfolio.”
Bulls look for a test of the 38.2% Fibonacci level of the Nov/Oct range located slightly higher than the US session highs of 17.20 at 17.27. This is an area of the confluence with a number of prior support and resistances marked over the hourly time frames as well as the 50-day moving average. Therefore, it is a tough nut to crack. The level guards a run to the 61.8% Fibo that meets the early November recovery resistance around 17.70. On the downside, bears will look to test the 21-DMA to give out at 17.10 for a close below there to open risk back towards the November lows of 16.64.