Gold and Silver Recover Ground Amid Recession Fears
Then it finally happened — the 2-10 curve inverted for the first time since 2007.
Hey FX Emperors, fears of a recession have sparked after the 2-10 year bond yields inverted earlier in the day as the 10-Y Treasury note fell to 1.623%, below the 2-year at 1.634.
According to experts who watch this event as an indicator, a recession happens on average 22 months after the inversion. So, fears about a recession jumped, and risk aversion flooded markets.
So, do you know what happens when investors are reluctant to take risks? Safe haven assets take advantage. Thus, gold and silver are trading positive on Wednesday after a setback performed on Tuesday.
Now, let’s talk about yesterday’s trading day.
The U.S. delays new China tariffs to some products until December
The White House announced its intention to delay some new tariffs that would take effect on September 1, until December 15.
The abrupt suspension came, according to the Trump Administration, after concerns about how much impact the escalation in the trade war would have on business and consumers ahead of the holiday shopping session.
“We’re doing this for Christmas season, just in case some of the tariffs would have an impact on U.S. customers,” President Trump said on Tuesday.
Seriously? It seems that the White House just discovered that Black Friday and Christmas season were still in play this year in the United States.
According to markets, the decision was motivated for the financial turmoil and fears of recession around the markets. So, a more dangerous escalation would hurt even more the weak market sentiment.
The decision about the delay sparked markets and lifted market sentiment with equities performing gains and gold declining to the 1,480 area. However, the suspension could arrive late.
A piece of good news after the decision is the decline in the USD/CNY, which is falling for the third day and it is now close to the 7.00 level, its lowest level in near ten days.
China economic data weaker than expected, Germany confirms contraction.
Retail sales in China rose 7.6% YoY in July, well above the 9.8% posted in June, and weaker than the 8.6% increase expected by market. Industrial production rose 4.8% in the last 12 months to July, well below the 5.8% expected by experts.
In Germany, the Gross Domestic Product contracted 0.1% in the second quarter of the year, a decline already expected. However, the year over year data was registered as unchanged in the Q2, way better than the 0.3% decline expected by market.
G.D.P. W.D.A. posted an advance of 0.4%, above 0.1% expected by market on a quarterly basis.
Gold recovers ground and tests the 1,520 area
In the economic uncertainty atmosphere, gold recovered from a shake experienced on Tuesday which drove the metal to a new high since April 2013 at 1,535, but also to a 1-week low of 1,480.
On Wednesday, the pair is trading positive as it is testing the 1,520 area and, at the same time, it is consolidating levels above the 1,500 level.
Currently, XAU/USD is trading at 1,511, 0.70% positive on the day. “The bullish drivers have not gone away but the question being asked now is whether we have reached a time where consolidation might be in order,” Saxo Bank analyst Ole Hansen said in a recent note to his clients.
Technical conditions show overbought conditions and a possible consolidation phase in the short term. To the upside, 1,520 is the immediate resistance, followed by the high of 1,535. Above there, 1,560 is the next significant area.
To the downside, the unit needs to clear below the 1,500 price and then the 1,480 area. Below there, 1,440 is the frontier.
Silver positive too
Silver recovered from the rollercoaster performed on Wednesday with a low of 16.50 and a high of 17.50, also its maximum since January 25. On Tuesday, XAG/USD is trading at 17.15, 1.15% positive on the day.
XAG/USD is now testing the 17.20 area, which is containing the pair. Technical indicators suggest more room for the upside with the mentioned level acting as a resistance. Above there, the high of 17.50 is the frontier.