Gold started the week modestly defensive, retracing Friday's rebound as markets looked ahead to Wednesday's planned signing of the phase one trade deal between the U.S. and China. Relative calm on the Iran front over the weekend resulted in a further heightening of risk appetite.
The yellow metal was confined to Friday's range, leaving last week's corrective low protected, at least for the time being. However, the key reversal chart pattern seen last Wednesday remains troubling and now so too does the close below the 9-day SMA. There remains downside risk and so a measure of caution is warranted here.
While the details of the trade deal remain vague, reports suggest China will agree to ramp up purchases of U.S. agricultural products, while also committing to curtail forced technology transfer. Those are two pretty big steps in the right direction, but it looks like broader efforts to protect U.S. intellectual property will be dealt with in a later "phase".
Stocks set more record highs, on Monday while Dr. Copper surged more than 1.5% to set more than 8-month highs as trade concerns ebbed. A Bloomberg article today noted that copper inventories have contracted 37% since July, so supply is tight. If trade rebounds between the U.S. and China, the demand for copper is likely to increase and drive the price higher yet.
Silver, on the other hand, doesn't seem to be garnering much support from the brighter trade picture. Instead, the white metal is trading more like a safe-haven and therefore remains short-term defensive. The 20-day SMA at 17.80 may be the attraction.
However, last week's push to nearly 5-month highs was really encouraging and returned considerable credence to the uptrend that dominated in Q3 2019. Make no mistake though, the white metal remains confined to the 13.64/21.14 range that has dominated since 2016.
Iran admitted over the weekend that they did indeed inadvertently shoot down the Ukranian passenger airliner. This has resulted in anti-government protests in Iran that have turned violent.
While the internal strife may keep the Iranian regime focused inward, for the time being, I think it's safe to assume that tensions between the U.S. and Iran are going to be elevated for some time to come. The market, however, likes the fact that the two countries aren't exchanging ordinance.
I still don't see recent price action in gold as a major reversal. Rather, I think the retreat from last week's high is corrective in nature and investors are likely to be looking for buying opportunities.
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