Upticks in gold since last week's low at 1445.62 have failed to impress and a softer tone prevails today. The yellow metal is being buffeted within a fairly narrow band by trade deal and geopolitical uncertainty, as well as the ongoing political theater in Washington DC.

Besides the swinging pendulum of trade deal expectations, gold is also being weighed by yesterday's release of the minutes from the October FOMC meeting. The minutes indicated that the October rate cut was likely the last for a while; “as long as incoming information about the economy did not result in a material reassessment of the economic outlook.”

It would seem that a failure of the U.S. and China to seal at least a Phase 1 trade deal in the weeks ahead is probably the biggest risk to the economic outlook, or at least to the U.S. stock market. And we all know how the Fed likes to caution about inflated asset prices, while still being quick to provide the liquidity and low rates to inflate said assets.

The fate of trade negotiations now seems to rest of whether President Trump will sign Hong Kong sovereignty legislation, versions of which have been passed by both the House and the Senate. A reconciled version is likely to hit the President's desk before the Christmas recess.

I like to watch copper in order to get an indication of how the market is really feeling about a trade deal. Copper is down nearly 1% today and is off nearly 4% from the early November high. Apparently confidence is on the wane, even after repeated assurance that a deal was imminent.

The recent rebound in silver hasn't been very impressive in terms of magnitude or momentum, with gains capped by the still-rising 100-day SMA and well shy of important retracement levels. I would suggest the downside remains vulnerable unless we see a short-term close back above 17.36/38.

Spot Silver Daily Chart

Daily Spot Silver Chart


However, Metals Focus's summary of the Silver Institute's Annual Silver Industry Dinner offers some cause for optimism. The report highlights that silver did indeed hit a three-year high of 19.65 in September, driven by improved investor sentiment.

Perhaps more significantly, the gold/silver ratio fell to a one-year low of 79.05. An while all that was more than two months ago, and more than $2 ago in silver, the outlook for demand seems encouraging.

"For the second year in a row, silver industrial fabrication will hold at a record high," despite the ongoing trade war. The important automotive and photovoltaic sectors are expected to remain solid sources of demand as cars incorporate even more technology and momentum in the renewable energy space continues.

Even silver jewelry and silverware demand are expected to increase by 3% and 4% respectively, albeit driven primarily by Indian buyers.

Finally, global silver bar and coin sales are expected to rise by 7% to a three-year high of 178.1Moz, driven by "improving price expectations and rising price volatility." India is playing a big part in this sector as well, although U.S. investment is poised to notch its first annual increase in four years.

Get stacking people!


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