The upbeat economic view toward the US economy from the US Federal Reserve combined with their intentions to remain on hold provided the gold market with a direct lift yesterday afternoon. While the gold and silver markets could have been undermined by the Fed's concern for low inflation, seeing the Fed basically "wish" for an uptick in inflation is a positive as that suggests the Fed will be less likely to raise rates in the face of even stronger US growth.
In a strange twist, it should be noted that the South African mining index reached an 11 year high and that price action was achieved in the face of further evidence of contracting South African production in both PGM's and gold. In fact, total South African mining output declined by 2.9% in October with gold output declining by 1.2% in October versus year-ago levels.
South African gold output for September was revised to even lower levels. As indicated yesterday, power generation has recovered but the utility infrastructure remains precarious and further rolling blackouts are likely as load factors rise along with seasonal temperatures.
Certainly, the gold and silver markets will be sensitive to the question of trade with China overnight refusing to comment on possible retaliation if the weekend tariffs from the US are invoked.
The gold market might also see some reaction from the UK parliamentary election with conservative leads in the polls narrowed just ahead of the beginning of the vote. We see a conservative victory as slightly bearish to gold as that could facilitate a quicker end to the exit thereby removing a global economic uncertainty. Obviously, a labor win or a hung parliament would stoke uncertainty again and support gold.
In looking ahead we see very little reaction to this morning's US PPI readings unless the headline reading posts a figure above 0.3%.
In the end, the gold trade appears to think there will not be trade progress this week and that has left the market with a bullish tilt. A downtrend channel resistance line on the February gold charts at $1,481.80 was taken out following the Fed result yesterday and that leaves the technical pattern in favor of the bull camp.
We invite you to subscribe to receive our more comprehensive market update delivered directly to your inbox.
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.
