Gold remains defensive in New York trading, weighed by persistent outflows in the paper market. The yellow metal set a fresh 13-week low in early U.S. trading.

Those outflows from futures and ETFs are being driven by persistent optimism about progress on a U.S.-China trade deal. Bloomberg reported yesterday that the State Street SPDR Gold Shares ETF saw a whopping $620.7 million withdrawn on Friday alone. That's the biggest outflow since October 2016.

In a separate article, Bloomberg also noted that on Monday 33,596 futures contracts were traded in a single 30-minute period, more than triple the average trading volume for that time of day. That's 3.36 million ounces of gold!

"The sharp, violent move lower quickly suggests stops or a liquidation.” – Tai Wong, the head of metals derivatives trading at BMO Capital Markets

I suggested in a tweet on Friday – after the spot market reached a new 13-week low, but follow-through was limited – that the market might be tempted to "find and run the stops."

I'm not necessarily convinced that the process is complete. Potential may be to 1430/1425, but the next tier of significant technical support is not until 1405/1400.

We're likely to hear more about trade and the U.S. economy as a whole when President Trump speaks before the New York Economic Club. I'd expect more general optimism, although the President has maintained that China wants and needs a trade deal more than the U.S. does.

Silver too remains on the ropes. The white metal has already retraced more than 50% of the rally from 14.293 (28-May low) to 19.648 (04-Sep high) and is trading well below the 100-day moving average.

Further downside potential can not be ruled out. The next level of support I'm watching is 16.34, which marks 61.8% retracement of the aforementioned rally.

Clearly silver is trading more as a safe-haven metal than an industrial metal. And it only makes sense, because it was haven demand associated with trade tensions and growth risk that was the driving force behind the rally.

A rebound above 17.00 would ease short term pressure on the downside, but 17.50/67 really must be regained to return a measure of confidence to the underlying uptrend.


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