Gold and especially silver have rallied sharply today on the back of weakness in US dollar and bond yields, to start the final quarter of the year on a firm footing. There were a few surprises in US data, suggesting the world’s largest economy is slowing down, thus reducing the need for aggressive rate increases. But after a bruising year, will precious metals be able to hold onto their gains and kick on from here? Or will the sellers return as they often have, and defend their ground?
Among today’s downwards surprises in US data were construction spending, which fell by a more-than-expected 0.7 percent.
The manufacturing PMI for September was nearly 2 points lower compared to the previous month’s report, at 50.9. But the devil was in the detail. New orders fell by over 4 points, while employment slipped by 5.5 points, potentially pointing to a weak non-farm payrolls report on Friday.
Out of the two metals, silver was the most impressive as it jumped over 7%, the most since Feb 2021, as yields fell on the back of BoE's temporary bond buying programme and disappointing US ISM manufacturing PMI data. But it is now near key resistance at $20.45, which had previously acted as support. A clean break above here is still needed to brighten the metal’s outlook, especially with gold also holding at a major resistance area.
After last week’s bounce and today’s firm prices, gold is now testing old long-term support around $1675 to $1690 area (also last year's low). It needs to break above this area on a daily closing basis to confirm a bullish reversal. Otherwise, the downtrend remains intact.
The Fed's hawkish tone hasn't changed much in recent data, so there's no compelling reason why the dollar or US bond yields would fall significantly from here. But they are both down today and this is offering the bulls an excuse to buy gold and silver with a bit of conviction.